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Interest rate on money market investments

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Gun manufacturer Bloodbath & Beyond currently has a cash balance of $750,000. It projects that cash outflows of $390,000 a month. The company pays a fee of $500 every time it sells securities through its broker and the annual interest rate on money market investments is 5.375%. Using the Baumol model, how much of current cash holdings should be retained and how much should be invested in the money markets. After the initial investment in securities, how many times during the next 12 months will the firm have to sell securities and how much will it pay in transaction fees.

Reference no: EM131318279

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