What Excel function would you use to generate random numbers from the standard n

Question

What Excel function would you use to generate random numbers from the standard normal distribution N(0, 1), i.e., the normal distribution that appears in the back of our statistics book, a normal random variable with a mean of 0 and a standard deviation of 1? b. What Excel function would you use to draw random numbers from a normal distribution N(-4, 1), i.e., a normal distribution where the random variable has a mean of -4 and a standard deviation of 1? c. Suppose we want to simulate a profit function where there is one output, in amount x, and two inputs, in amounts y1 and y2. We sell the output for $10/unit Input 1 costs $3/unit but we are uncertain about the cost of input 2. We know the cost of input 2 is normally distributed with a mean of $4/unit and a standard deviation of $1/unit, then what Excel equation would we use to represent the cost of input 2? d. The notes for Chapter 11 presented a simulation of the Single Index Model from finance. This model is basically an application of the simple regression model y = beta_0 + beta_1 x + epsilon, where epsilon a normal random variable with mean 0 and some finite standard deviation. What Excel equation would we use to simulate a normal random variable with mean 0 and standard deviation of 0.09?

Explanation / Answer

#2a)       =NORMINV(RAND(),0,1) i.e. NORMINV(Probability,Mean,StandardDeviation)

#2b)       =NORMINV(RAND(),-4,1) i.e. NORMINV(Probability,Mean,StandardDeviation)

#2c)       =NORMINV(RAND(),4,1) i.e. NORMINV(Probability,Mean,StandardDeviation)

#2d)       =NORMINV(RAND(),0,.09) i.e. NORMINV(Probability,Mean,StandardDeviation)

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