Which of the Following Is True Regarding Trading Costs and the Size

question 262

Multiple Choice

Which of the following is true regarding trading costs and the size of the firm's cash balance?

• A) Total trading costs are inversely related to the fixed cost of making a securities trade.
• B) Trading costs will not change as the size of the cash balance is increased.
• C) The lower the trading costs, the lower will be the firm's target cash balance in the BAT model.
• D) The total cost to a firm of maintaining a specific cash balance is inversely related to the amount of trading costs incurred to maintain that balance.
• E) Trading costs are irrelevant in determining the optimal cash balance in the Miller-Orr model, but not in other models.

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Definitions:

Paid-in Capital

The total amount of capital that a company has received from shareholders in exchange for shares of stock.

Retained Earnings

Profits that a company has earned to date, less any dividends or other distributions paid to shareholders.

Earnings Per Share

A financial ratio calculated by dividing a company's profit available to its common shareholders by the number of outstanding shares.

Outstanding Common Stock

Shares of a company that have been issued and are currently held by investors, excluding shares held by the company itself.