Reese's Resources Faces a Smooth Annual Demand for Cash of $15

question 99

Multiple Choice

Reese's Resources faces a smooth annual demand for cash of $15 million, incurs transaction costs of $125 every time they sell marketable securities, and can earn 4.5 percent on their marketable securities. What will be their optimal cash replenishment level?

• A) $28,867.51
• B) $288,675.13
• C) $61,237.24
• D) $6,123.72

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Definitions:

Geometric Average Return

The average rate of return of a set of values calculated by multiplying the n values and taking the n-th root.

Multi-year Period

A timeframe that extends beyond a single year, often used in financial planning, projections, and analysis.

Compound Return

The rate of return on an investment that includes reinvesting the gains to generate additional earnings over time.

Semi-Strong Form Efficient

This term describes a market hypothesis where all public information is already reflected in stock prices, implying that analyzing financial statements or recent news would not give an investor any advantage.