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A company has decided it needs a minimum balance of $10,000. The transaction cost (of making transfers to/from deposit) is $5 per transaction. The standard deviation of cash flows is $2,000 per day, and the interest rate is 5.11% p.a. (or 5.11/365 = 0.014% per day). What should be the upper and lower limits, and the return point?
Dear John,
Could you please explain the solution to the question which I take from Opentuition’s notes as I do not understand why the Variation used to derive Spread is &400,000 instead of 2,000?
But I work through this example in full in my free lecture on this chapter, and you cannot expect me to type out the whole lecture here.
You should not be using the lecture notes without watching the lectures. They are only lecture notes and it is in the lectures that I explain and expand on the notes.
If you are not watching the lectures for any reason then you must buy a Study Text from one of the ACCA approved publishers and study from there.
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