Halliday Inc. receives a $2 million payment once a year. Of this amount, $795,000 is needed for cash payments made during the next year. Each time Halliday deposits money in its account, a charge of $8.95 is assessed to cover clerical costs. If Halliday can hold marketable securities that yield 4%, and then convert these securities to cash at a cost of only the $8.95 deposit charge, what is the total cost for one year of holding and converting the minimum cost cash balance according to the Baumol model?

Use the data from problem 4 and consider the following new information. Interest rates in the market have declined so that marketable securities now yield only 1%. In addition, Halliday Inc.'s bank has raised the deposit charge from $8.95 to $10.95. How will these two changes affect the optimal cash amount C* from the Baumol Model?

Group of answer choices

C* will increase.

C* will decrease.

C* will stay the same.

Indeterminate without more information.

C* = $795,000 with only one transfer per year to minimize total cash costs of holding costs and transactions costs.