Cash account be used to purchase interest bearing investment

Assignment Help Financial Management

Reference no: EM132044615

A company’s cash balance varies randomly from day to day. It costs the company $30.00 per transaction to move funds from the cash account (which is non-interest bearing) to an account that earns interest or to move funds from the interest bearing account to the cash account. Its average return on interest bearing securities is 1.65%. The company wants to maintain a minimum cash balance of $40000. The variance of the company’s daily cash balance is 241,025,000. 1. When the company’s cash balance reaches $40000, how much money should be added to the cash account by selling interest bearing investments? 2a. At what cash account balance (upper limit) will funds from the cash account be used to purchase interest bearing investments? b. What dollar amount of interest bearing investments will be purchased when the cash account balance reaches the amount indicated in part a. 3a. How would the results (answer to questions 1 and 2a and b) change if the variance of daily cash balance were to increase by 30%? b. How would the results (answer to questions 1 and 2a and b) change if the interest rate were to increase to 2.00%? c. How would the results (answer to questions 1 and 2a and b) change if the costs to convert to or from cash were to increase to $35?

Reference no: EM132044615

Questions Cloud

What were excess reserves of depository institutions : What were excess reserves of depository institutions in August of 2008 to the nearest billion? Do not use a $ sign.

Evaluate proposed spectrometer : New project analysis You must evaluate a proposed spectrometer for the R&D department. If the WACC is 11%, should the spectrometer be purchased?

An investor is evaluating two-asset portfolio : An investor is evaluating a two-asset portfolio of the following securities: Stock Expected Return Expected Risk (?) Correlation (?)

Motivations for counter party to enter into currency swap : Discuss the basic motivations for a counter party to enter into a currency swap.

Cash account be used to purchase interest bearing investment : At what cash account balance (upper limit) will funds from the cash account be used to purchase interest bearing investments?

What is the company cost of equity capital : If the risk-free rate is 4.5 percent and the expected return on the market is 11 percent, what is the company’s cost of equity capital?

Describe the benefits of diversification : Describe the benefits of diversification if any including adding international stocks to your investment portfolio?

How many shares can the firm repurchase : How many shares can the firm repurchase if it issues the debt securities?

The economy booms and the firm maintains all-equity status : If the economy booms and the firm maintains its all-equity status, then the earnings per share (EPS) will be _____.

User Account

All Pages