1.RAC has determined that it target cash balance using the BAT model is $6,556. The total cash needed for the next 15 weeks is $31,000. The cost of selling marketable securities is $10 per transaction.

a.How much is the trading costs?

b.How much is the annualized interest rate being earned on the marketable securities?

c.How much is the opportunity cost, trading cost and total cost?

2.BBD has set the lower limit on its cash at $12,000. Its monthly standard deviation of net cash flows is $1,500. The interest rate earned on it investments is 3.6% per annum. R* = 3.6%/12 = 30 basis points, 0.0030. . Each transaction to buy or sell securities is $35.

a.How much is the target cash balance C*?

b.How much is the upper cash balance.?

3.Med-Supply has fixed cost associated with buying and selling marketable securities of $40. The interest rate currently earned on the marketable securities is 7% per anum.The daily rate is 7%/365 rounded to basis points is R* = 0 .0002per day. The firm estimated the standard deviation of its net cash flows as $80 per day. Management set a low limit on cash at $1,500.

a.How much is the target cash balance?

b.The upper level for cash?

c.What should the management do of the cash balance is between the upper and lower levels?

d.What should the management do if the cash balance exceeds the upper level or falls below the lower level?