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Determining the optimal cash balance


Problem:

The XYZ Corp. requires that their cash balance never dip below $100. The standard deviation of their monthly net cash flows is $200. The interest rate is 1% per month.

Required:

Question 1: What is the optimal cash balance?

Question 2: What is the upper limit of their cash balance?

Note: Please show the work not just the answer.

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Accounting Basics: Determining the optimal cash balance
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