• Paradise Retailers, Inc. (PRI) determined that $1,500,000 is needed for cash transactions made during the next year.Each time PRI deposits money in its checking account, a charge of $12.95 is assessed to cover clerical costs.If PRI can hold marketable securities that yield 4.5%, and then convert these securities to cash at a cost of only the $12.95 deposit charge, what is the optimal cash amount C* to transfer from marketable securities to the checking account according to the Baumol Model?

• PRI's financial managers have not been following the Baumol Model.Instead, they have been transferring cash from marketable securities less frequently, namely, transferring cash every 4 weeks.What total cash cost including holding costs and transactions costs could PRI save by transferring the optimal cash amount C* rather than this larger transfer amount?

• PRI's financial managers are adjusting their optimal cash amount C* from the Baumol Model to respond to changing market conditions.Interest rates have declined so that their marketable securities now yield 3.25% and their bank raised its deposit charge from $12.95 to $13.95.By what amount will PRI's optimal cash amount C* increase from what you calculated in problem 15?