If you spend $3,000 per year in cash,each trip to the bank costs you $5 in lost time,and the yearly interest rate on your bank account,expressed as a fraction,is 0.03,how many times a year does the Baumol-Tobin model suggest you should go to the bank?

Question

Quizplus · Accepted Answer

The Baumol-Tobin model suggests the optimal number of trips to the bank is the square root of (2 times the total cash needed per year times the cost per trip) divided by the interest rate. Here, it calculates to approximately 3 trips.

If You Spend $3,000 Per Year in Cash,each Trip to the Bank