Paradise Retailers, Inc. (PRI) determined that $1,500,000 is needed for cash transactions made during the next year. Each time PRI deposits money in its checking account, a charge of $12.95 is assessed to cover clerical costs. If PRI can hold marketable securities that yield 4.5%, and then convert these securities to cash at a cost of only the $12.95 deposit charge, what is the optimal cash amount C* to transfer from marketable securities to the checking account according to the Baumol Model? 

 Use the data from  above problem , PRI's financial managers have not been following the Baumol Model. Instead, they have been transferring cash from marketable securities less frequently, namely, transferring cash every 6 weeks. What total cash cost including holding costs and transactions costs could PRI save by transferring the optimal cash amount C* rather than this larger transfer amount?  

 Using the data from first  problem, PRI's financial managers are adjusting their optimal cash amount C* from the Baumol Model to respond to changing market conditions. Interest rates have declined so that their marketable securities now yield 3.25% and their bank raised its deposit charge from $12.95 to $16.95. By what amount will PRI's optimal cash amount C* increase from what you calculated in first problem ?

 If it takes $0.75 U.S. dollars to purchase one Swiss franc, how many Swiss francs can one U.S. dollar buy? 

Answer rating: 100% (QA)

Problem 1 Optimal Cash Amount C We can solve this using the Baumol Model C 2 c T I C Optimal cash am... View the full answer