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The following formula determines the optimal amount of the initial deposit in the cash account, and the equivalent transfer amount that will minimize the cost
The following formula determines the optimal amount of the initial deposit in the cash account, and the equivalent transfer amount that will minimize the cost of managing an organization's cash account.
C = (2*b*T)/i
The letter b is the cost of making a transfer and the letter i is the interest rate differential. T is the total amount of cash needed over the period.
Explain the significance of b and i. That is, given what they are explain what role they play in determining how much cash to transfer and the frequency of transfers.
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