Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Transcribed Image Text:The finance director of Chessington Inc. is reviewing their target cash balances
in light of their varying cash inflows. You decide that the Miller-Orr model would
provide some useful guidelines. Given a lower cash balance level of $500, a
standard deviation of monthly net cash flows of $700 and a monthly interest
rate of 0.5%. Transaction costs of switching from market securities into cash
are $15 per transaction on average.
I
(a). Calculate the target cash balance.
(b). Calculate the upper cash limit.
(c). Calculate the average cash balance.
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