A Firm Using Baumol's Model Will Do One of the Following

question 31

Multiple Choice

A firm using Baumol's model will do one of the following if the interest rate on short-term securities went up.

• A)increase the average cash balance
• B)increase the collection period
• C)decrease the collection period
• D)decrease the average cash balance

---

Definitions:

Premium on Bonds Payable

The excess of a bond's sale price over its principal amount.

Bonds Payable

A long-term liability account that records the amounts owed by a company to bondholders until the debt’s maturity date.

Installment Note

A debt or loan that is repaid over time with a set number of scheduled payments, typically including both principal and interest.

Interest Expense

Interest expense is the cost incurred by an entity for borrowed funds, payable over a certain period to the lender as compensation for the loan.