Using a money-market fund and a checking account

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Reference no: EM13766226

Martin Company uses Miller-Orr model to manage its cash, using a money-market fund and a checking account. Martin keeps a minimum balance of $5000 in the checking account. The checking account pays no interest, but the money market pays 5% interest per annum. Martin has found the standard deviation of the cash flows to be $5120 per week. The cost of transferring the funds between the accounts is $125 per transfer. Assume that a year has 52 weeks. Find the following:

(A) The average checking account balance.

(B) The interest forgone in a year.

Reference no: EM13766226

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