BullsNBears, a Purveyor of Financial Databases, Estimates It They Disburses

question 6

Multiple Choice

BullsNBears, a purveyor of financial databases, estimates it they disburses $440,000 monthly in order to pay bills. The firm's opportunity rate is 5%. The fixed cost of transferring money is $25 per transfer. Based on historical data, the standard deviation of monthly cash flows is $15,000 and the lower cash balance limit is $20,000. For Miller-Orr model questions, assume the interest rate is 0.5% per month.

Using the BAT model, what is the total trading cost?

• A) $1,532
• B) $1,817
• C) $1,923
• D) $2,405
• E) $2,664

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Definitions:

Dependency

A reliance on someone or something else for support or the proportion of non-working population to the working population.

Private Capital Flows

Financial resources that are invested in a country by private sector entities from other countries, including investments in equity, debt, and property.

Direct Foreign Investment

An investment made by a company or individual in one country in business interests in another country, in the form of either establishing business operations or acquiring business assets.

World Bank

A bank that lends (and guarantees loans) to developing countries to assist them in increasing their capital stock and thus in achieving economic growth.