The optimal amount of the firm's liquid asset balance to be invested in marketable securities is a function of the _____.

Question

Quizplus · Accepted Answer

The optimal amount of the firm's liquid asset balance to be invested in marketable securities depends on both the interest earned over the expected holding period and the transaction cost involved in buying and selling the securities. The spread between long-term and short-term interest rates is also a factor to consider, but it only influences the decision in terms of whether to invest in short-term or long-term securities. Therefore, choice D is the best answer, as it considers both important factors in making the decision.

The Optimal Amount of the Firm's Liquid Asset Balance to Be