of 3 4. Simulation Over a five-year period, the quarterly change in the price per share of common stock for a major oil company ranged from -8% to 12%. A financial analyst wants to learn what can be expected for price appreciation of this stock over the next two years. Using the five-year history as a basis, the analyst is willing to assume that the change in price for each quarter is uniformly distributed between -8% and 12%. Use simulation to provide information about the price per share for the stock over the coming two-year period (eight quarters). a. Use two-digit random numbers from column 2 of Table 12.2 in the book, beginning with 0.52, 0.99, and so on, to simulate the quarterly price change for each of the eight quarters. b. If the current price per share is $80, what is the simulated price per share at the end of the two-year period? c. Discuss how risk analysis would be helpful in identifying the risk associated with a two- year investment in this stock. TABLE 12.2 BUTLER INVENTORY SIMULATION RESULTS FOR FIVE TRIALS WITH Q = 100 Shortage Cost ($) Month Holding Cost ($) 315 Net Profit ($) Demand 79 111 0 330 3,635 4,670 93 105 Sales 79 100 93 100 100 472 Gross Profit ($) 3,950 5,000 4,650 5,000 5,000 23,600 $4,720 100 118 4,545 5,000 4,460 22,310 501 420 540 870 $174 Totals Average 100 $84 $4,462 of 3 4. Simulation Over a five-year period, the quarterly change in the price per share of common stock for a major oil company ranged from -8% to 12%. A financial analyst wants to learn what can be expected for price appreciation of this stock over the next two years. Using the five-year history as a basis, the analyst is willing to assume that the change in price for each quarter is uniformly distributed between -8% and 12%. Use simulation to provide information about the price per share for the stock over the coming two-year period (eight quarters). a. Use two-digit random numbers from column 2 of Table 12.2 in the book, beginning with 0.52, 0.99, and so on, to simulate the quarterly price change for each of the eight quarters. b. If the current price per share is $80, what is the simulated price per share at the end of the two-year period? c. Discuss how risk analysis would be helpful in identifying the risk associated with a two- year investment in this stock. TABLE 12.2 BUTLER INVENTORY SIMULATION RESULTS FOR FIVE TRIALS WITH Q = 100 Shortage Cost ($) Month Holding Cost ($) 315 Net Profit ($) Demand 79 111 0 330 3,635 4,670 93 105 Sales 79 100 93 100 100 472 Gross Profit ($) 3,950 5,000 4,650 5,000 5,000 23,600 $4,720 100 118 4,545 5,000 4,460 22,310 501 420 540 870 $174 Totals Average 100 $84 $4,462
