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The cash requirement for a company in quarter Q1 is known to be $100 but, for the remaining quarters, the company considers three equally likely
The cash requirement for a company in quarter Q1 is known to be $100 but, for the remaining quarters, the company considers three equally likely scenarios Q2 Q3 Q4 Q5 Q6 Q7 Q8 Scenario 1 450 100 -650 -550 200 650 -850 Scenario 2 500 100 -600 -500 200 600 -900 Scenario 3 550 150 -600 -450 250 600 -800 Positive entries represent cash needs While negative entries represent cash surpluses. The company has three borrowing possibilities: A two-year loan available at the beginning of Q1, with an interest rate of 1% per quarter The other two borrow opportunities are available at the beginning of every quarter: a six-month loan with an interest rate of 1.8% per quarter, and a quarterly loan at an interest rate of 2.5% for the quarter. Any surplus can be invested at an interest rate of 0.5% per quarter. What decision strategy maximizes the expected wealth at the end of quarter Q8? In other words, when, how much, and under what circumstances should the firm borrow money
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