Why is the optimal average cash balance

Assignment Help Finance Basics

Reference no: EM13282298

A=total amount of money deposited
R=monthly interest rate
T=total amount of each withdrawal(fees included)
N=number of times of withdrawal

So the fewer withdrawal the less fees would occur, but the more money left in the bank, the more interest is being earned.

My questions are,
1. Why is the average remaining amount at any given time A/(2n)?
2. Why is the optimal average cash balance (AT/2R)^(1/2)
3. Find the vaule of N that MINIMIZES total costs(transaction costs and lost interest).

Reference no: EM13282298

Questions Cloud

Define and discuss the concepts of risk and return : Discuss the importance of portfolio diversification and the relationship to risk and return.

What is the acceleration of the yellow car : Two cars start from rest at a red stop light. When the light turns green, both cars accelerate forward. What is the acceleration of the yellow car

Should the couple open the restaurant : 3) How many meals must the Soons serve each night to earn their target income of $75,600? Should the couple open the restaurant? Support your answer.

Determine the tension in the right segment of the string : Consider a string with length 36 cm. The two ends are attached to the ceiling, separated by distance 30.0 cm. Determine the tension in the right segment of the string

Why is the optimal average cash balance : So the fewer withdrawal the less fees would occur, but the more money left in the bank, the more interest is being earned.

Obtain the radius of curvature of the mirror : You are standing 3.0 m from a convex security mirror in a store. Estimate the radius of curvature of the mirror

Explain what is the oxidation half-reaction for the step : Chlorine reacts with potassium iodide. What would the color of the resulting solution be. What is the oxidation half-reaction for this step.

How efforts should be meshed and managed : Organisational structure is a formal system that separates and intergrates work related tasks and separation of tasks makes clear who should do what and intergration of tasks indicates how efforts should be meshed and managed.

Determine the value of capacitance to a dc source : When a capacitor is connected to a DC source its voltage rises from20 V to 36 V in 4μs with an average current of 0.6 A. Determine the value of capacitance.

User Account

All Pages