A Firm Uses the Miller-Orr Model with a Minimum Balance

question 55

Multiple Choice

A firm uses the Miller-Orr model with a minimum balance of €10,a maximum of €80,and a target balance of €40.If the cash balance was to hit €10,what would the firm do?

• A)Buy €10 in marketable securities.
• B)Buy €30 in marketable securities.
• C)Sell €30 in marketable securities.
• D)Sell €60 in marketable securities.
• E)None of the above.

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Definitions:

Interest

A fee, usually charged for the use of money.

Check Register

A record of checks written, deposits made, and current balances within a checking account.

Deposits

Money placed into an account or given to a third party as a pledge for the fulfilment of an agreement.

Cash Balance

The amount of money in cash or cash equivalents that a company or individual has available at any given time.