Provide detailed step by step solution explaining in words on how you get to the answers. The answers are provided to you and highlighted however you have to explain step by step on how you get to the answers:
5.1. 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.
$3533 ?
5.2. Genentech Corporation by analyzing its weekly balances in its checking account has determined that the variance of cash flows is $3000000. 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 $5000 as a minimum balance in the checking account. Find the annual cost of interest forgone.
$606 ?
5.3. 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
$11347
6
$23343
11
$13907
2
$12525
7
$17673
12
$13623
3
$16003
8
$15985
13
$15249
4
$17056
9
$12078
14
$18466
5
$21732
10
$10049
15
$19567
What is s the standard deviation of the net cash flows?
$3010 ?
5.4. 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.
4.84% 4.94% ?
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