The Target Cash Balance for a fiRm That Follows a flExible

question 206

Multiple Choice

The target cash balance for a firm that follows a flexible cash management policy is the point at which ____________.

• A) Opportunity costs are minimized.
• B) Opportunity costs are equal to trading costs.
• C) Total costs just exceed the minimum cash balance.
• D) Total costs are just below their maximum.
• E) Transactions costs are maximized.

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Definitions:

In-the-Money

An option is considered in-the-money when it has intrinsic value, meaning that for a call option the market price of the asset is above the strike price, and for a put option, it's below the strike price.

Strike Price

The fixed price at which an option's holder has the right to purchase (if a call option) or sell (if a put option) the underlying asset or commodity.

Option Premium

An option premium is the price that a buyer pays to the seller for an options contract, which gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specified strike price.

Conversion Price

The predetermined price at which convertible securities can be exchanged for common stock.