Question
ATMs 'R Us (ARU) contracts with banks in the metropolitan area to stock and maintain ATM machines on a daily basis; i.e., each morning the
ATMs 'R Us (ARU) contracts with banks in the metropolitan area to stock and maintain ATM machines on a daily basis; i.e., each morning the ATM is cleared out and the amount of money changed to the appropriate amount. The bank has specified that ARU stock $42,000 in a particular machine on the first Friday of every month. At that machine on that particular day of the month, there is an average of 498 transactions with a standard deviation of 68, and average transaction size is $80 with a standard deviation of $13 (both are normally distributed). The bank's daily cost of capital is 0.5%. The question to solve is what is the bank's cost of not having a dollar available when a customer demands it.
Thank you.
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