1. Campbell Corporation uses Baumol model to manage cash. The cost of transferring money from a money-market fund, which pays 6% interest on balances, to a checking account is $32 per transaction. Campbell needs $13 million annually to pay its bills. Find the annual cost of interest forgone.
2. Genentech Corporation, by analyzing its weekly balances in its checking account, has determined that the variance of cash flows is $3,000,000. Further, the cost of transferring money from the checking account to a money market account is $65 per transfer. The interest on the checking account is 1%, while that on the market account is 6%. Genentech wants to keep $5,000 as a minimum balance in the checking account. Find the annual cost of interest forgone.
3. Miller-Orr, Excel: New Jersey Company has recorded the following balances in its checking account for 15 consecutive Wednesdays:
|
Week no.
|
Balance
|
Week no.
|
Balance
|
Week no.
|
Balance
|
|
1
|
$11,347
|
6
|
$23,343
|
11
|
$13,907
|
|
2
|
$12,525
|
7
|
$17,673
|
12
|
$13,623
|
|
3
|
$16,003
|
8
|
$15,985
|
13
|
$15,249
|
|
4
|
$17,056
|
9
|
$12,078
|
14
|
$18,466
|
|
5
|
$21,732
|
10
|
$10,049
|
15
|
$19,567
|
What is σ, the standard deviation of the net cash flows?
4. Treasury Securities: Nevada Company has bought T-bills with face amount $5.45 million, with a discount of 4.73%, and time to maturity 73 days. Find its bond equivalent yield, and its yield as a zero coupon bond.