Mary earns a monthly income of $3,000. She spends the entire amount each month at the rate of $100 a day. (Assume there are 30 days in the month.) The interest rate paid on bonds is 5% per month. It costs $10 every time Mary sells a bond.
(a) Describe briefly how Mary should go about deciding how much money to hold.
(b) Mary can switch from bonds to cash up to a maximum of three times. How many times should Mary switch from bonds to cash?
(c) What is Mary's optimal balance?

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The Answer of Mary earns a monthly income of $3,000. She spends the entire amount each month at the rate of $100 a day. (Assume there are 30 days in the month.) The interest rate paid on bonds is 5% per month. It costs $10 every time Mary sells a bond.
(a) Describe briefly how Mary should go about deciding how much money to hold.
(b) Mary can switch from bonds to cash up to a maximum of three times. How many times should Mary switch from bonds to cash?
(c) What is Mary's optimal balance?

Mary Earns a Monthly Income of $3,000