Models
This simple model illustrates two ways variable interest rates on a loan might be simulated. In the first model, the yearly interest rates are generated independently of one another. Each is normally distributed with mean 10% and standard deviation 1%. In the second model, a random walk model, the first interest rate is normally distributed with mean 10% and standard deviation 1%, but each succeeding interest rate is normally distributed with mean equal to the actual previous rate and standard deviation 1%.
