A company uses the Miller Orr Model to manage its cash level. Suppose that short-term securities yield 5% per year and it costs the company Kshs 50,000 each time it buys or sells securities. The daily variance of cash flows is Kshs 1,000,000 and the bank requires Kshs1, 000,000 minimum current account balances. Assume 1 year consists of 365 days.

Required:

i. Explain the basic principle of the Miller Orr Model? (6 marks)

ii. What is the target cash balance? (6 marks)

iii. What is the upper balance for the cash account? (4 marks)

kindly answer should be clear thanks