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Martin Company uses Miller-Orr model to manage its cash, using a money-market fund and a checking account. Martin keeps a minimum balance of $5000 in
Martin Company uses Miller-Orr model to manage its cash, using a money-market fund and a checking account. Martin keeps a minimum balance of $5000 in the checking account. The checking account pays no interest, but the money market pays 5% interest per annum. Martin has found the standard deviation of the cash flows to be $5120 per week. The cost of transferring the funds between the accounts is $125 per transfer. Assume that a year has 52 weeks. Find the following: (A) The average checking account balance. (B) The interest forgone in a year.
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