Happy Feet Would Like to Maintain Their Cash Account at a Minimum

question 3

Multiple Choice

Happy Feet would like to maintain their cash account at a minimum level of $75,000, but expects the standard deviation in net daily cash flows to be $5,000; the effective annual rate on marketable securities to be 7 percent per year; and the trading cost per sale or purchase of marketable securities to be $150 per transaction. What will be their optimal upper cash limit?

• A) $80,000.00
• B) $99,755.64
• C) $76,593.42
• D) $149,266.92

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Definitions:

Hypochondria

An excessive preoccupation with the fear of having a serious illness, despite medical reassurance to the contrary.

Claustrophobia

An anxiety disorder characterized by an irrational fear of being in enclosed or narrow spaces.

Enclosed Places

Spaces that are fully or partially surrounded by walls and a ceiling, often creating a separate and distinct environment from the outside.

Brontophobia

An irrational fear of thunder and lightning.