1. The average yield on marketable securities is 9 percent/year; the fixed cost of transaction is $50 per transaction. The past cash balance study indicates that the firm's standard deviation of daily cash balance changes is equal to $800. The firm sees no reason why this variability should change in the future. The firm does maintain $1,000 in its demand deposits account at all times.

1. What is the optimal cash return point?
2. What is the upper cash balance?
3. Explain how the model will work?