Cash account by selling interest bearing investments

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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: EM132044597

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