Concerning the Baumol Model, Which of the Following Is Not

question 77

Multiple Choice

Concerning the Baumol model, which of the following is not correct (all other things equal) ?

• A)The optimum cash balance is higher the higher are interest rates.
• B)The optimum cash balance is higher the higher are fixed order costs.
• C)The optimum cash balance is higher the higher is the firm's total cash requirement.
• D)The optimum cash balance is lower the higher are interest rates.
• E)All of the above are correct.

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Definitions:

Interest Rate

The amount charged by a lender to a borrower for the use of assets, expressed as a percentage of the principal.

Income

The monetary payment received for one's work, investments, or other sources, primarily used for personal consumption, savings, and investment.

Present Value

The present value of an expected amount of money or sequence of cash flows, with a given return rate.

Interest Rate

The percentage at which interest is paid by borrowers for the use of money they borrow from a lender.