How Do You Determine Whether to Use the Z or T

question 48

Essay

How do you determine whether to use the z or t distribution in computing the margin of error, $$E = z _ { \alpha / 2 } \cdot \frac { \sigma } { \sqrt { n } } \text { or } E = t _ { \alpha / 2 } \cdot \frac { s } { \sqrt { n } } ?$$

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Definitions:

Target Cash Balance

A firm’s desired cash level as determined by the trade-off between carrying costs and shortage costs.

Cost of Borrowing

The total amount of money that a borrower pays to secure a loan, including interest, fees, and any other charges.

Miller-Orr Model

A financial model that helps in managing cash flows and cash reserves of firms, focusing on maintaining an optimal balance level.

Interest Rate

The percentage charged on a loan or paid on deposits over a specific period, reflecting the cost of borrowing or the gain on savings.