Assume that the nominal interest rate in an economy is 3 percent and the cost of going to the ATM is $1.50.You spend $5 each day, and there is also a 12 percent probability of having your cash lost or stolen.

a.What is your total cost of holding cash as a function of the number of days between trips to the ATM?
b.How often will you go to the ATM to minimize your costs?

Question

Assume that the nominal interest rate in an economy is 3 percent and the cost of going to the ATM is $1.50.You spend $5 each day, and there is also a 12 percent probability of having your cash lost or stolen.

a.What is your total cost of holding cash as a function of the number of days between trips to the ATM?
b.How often will you go to the ATM to minimize your costs?

Quizplus · Accepted Answer

The Answer of Assume that the nominal interest rate in an economy is 3 percent and the cost of going to the ATM is $1.50.You spend $5 each day, and there is also a 12 percent probability of having your cash lost or stolen.

a.What is your total cost of holding cash as a function of the number of days between trips to the ATM?
b.How often will you go to the ATM to minimize your costs?

Assume That the Nominal Interest Rate in an Economy Is