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Exercise

Exercise 2. Bank earnings Monte Carlo

Run a Monte Carlo simulation with 10,000 outcomes for \(S\), the sum of losses over 10,000 loans. Make a histogram of the results.

Instructions
100 XP
  • Within a replicate loop with 10,000 iterations, use sample to generate a list of 10,000 loan outcomes: payment (0) or default (1). Use the outcome order c(0,1) and probability of default p_default.
  • Still within the loop, use the function sum to count the number of foreclosures multiplied by loss_per_foreclosure to return the sum of all losses across the 10,000 loans. If you do not take the sum inside the replicate loop, DataCamp may crash with a "Session Expired" error.
  • Plot the histogram of values using the function hist.