Question: You are creating a simulation in excel using Rand() in the first column and NormInv() in the next column to simulate draws from a standard normal distribution (mean = 0, standard deviation = 1) meaning you are simulating Z values. (20 points)

1. Fill in the second column:
   
   You are simulating the interaction of your decisions to reduce principal on mortgage loans with the borrower's decisions to default on these home mortgages.
   You choose a loan amount in a range of 70% to 120%. In the simulation, each borrower decides to default or not based on adding Z times 10% to a base house value of 100% and comparing that to the loan amount that you decided. If the borrower's value is below_the loan amount, he defaults and otherwise he does not. If the loan does not default your payoff is the loan amount (the percentage). If the loan defaults you get the house value (originally 100%) after adding the simulation Z times 10% - minus a foreclosure loss equal to another 20% of house value.
2. How can you use this simulation to find a profit maximizing rule for setting loan amounts?
3. What data would you need to validate (and calibrate) the model parameters as described above?
4. Do you think there are other important variables that should be included in the simulation? Is so describe them and justify why they should be included.

Price: $2.99

Solution: The downloadable solution consists of 2 pages
Deliverable: Word Document