Gold Star Co. and Silver Star Co. both manage their cash flows according to the MillerOrr model. Gold Star’s daily cash flow is controlled between \($100,000\) and \($200,000,\) whereas Silver Star’s daily cash flow is controlled between \($150,000\) and \($300,000.\) The annual interest rates Gold Star and Silver Star can get are 10 percent and 9 percent, respectively, and the costs per transaction of trading securities are \($2,000\) and \($2,500,\) respectively.

a. What are their respective target cash balances?

b. Which firm’s daily cash flow is more volatile?