Mathematics · Baumol Model
Using the Baumol Model for optimal cash management, a firm has estimated that its total cash requirement for the upcoming year is 40,00,000 INR. The cost associated with each conversion of marketable securities into cash (transaction cost) is 200 INR. The annual interest rate on marketable securities is 10%. Calculate the optimal transaction size (C) that the firm should use to minimize its total costs of holding and converting cash.
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 11,60,000 INR
- 280,000 INR
- 340,000 INR
- 41,26,491 INR✓
Correct answer
1,26,491 INR
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