What Is the Opportunity Cost of Keeping a Cash Balance

question 30

Multiple Choice

What is the opportunity cost of keeping a cash balance of $2.5 million, if the daily interest rate is 0.025 percent and the average transaction cost of investing money overnight is $50?

• A)$121
• B)$171
• C)$575
• D)$675 Daily interest = 2.5 million x .00025 = 625

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