33 MillerOrr Model Gold Star Ltd and Silver Star Ltd both manage their cash flows according to...
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33 Miller–Orr Model Gold Star Ltd and Silver Star Ltd both manage their cash flows according to the Miller–Orr model. Gold Star’s daily cash flow is controlled between £95,000 and £205,000, whereas Silver Star’s daily cash flow is controlled between £120,000 and £230,000. The annual interest rates Gold Star and Silver Star can get are 5.8 per cent and 6.1 per cent, respectively, and the costs per transaction of trading securities are £2,800 and £2,500, respectively.
(a) What are their respective target cash balances?
(b) Which firm’s daily cash flow is more volatile?
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