Based on Baumol (1952). Money in your savingsaccount earns interest at a 3% annual rate. Each timeyou go to the bank, you waste 15 minutes in line, andyour time is worth $10 per hour. During each year,you need to withdraw $10,000 to pay your bills.a. How often should you go to the bank?b. Each time you go to the bank, how much moneyshould you withdraw?c. If your need for cash increases, will you go to thebank more often or less often?d. If the interest rate increases, will you go to thebank more often or less often?e. If the bank adds more tellers, will you go to thebank more often or less often?
Based on Baumol (1952). Money in your savingsaccount earns interest at a 3% annual rate. Each timeyou go to the bank, you waste 15 minutes in line, andyour time is worth $10 per hour. During each year,you need to withdraw $10,000 to pay your bills.a. How often should you go to the bank?b. Each time you go to the bank, how much moneyshould you withdraw?c. If your need for cash increases, will you go to thebank more often or less often?d. If the interest rate increases, will you go to thebank more often or less often?e. If the bank adds more tellers, will you go to thebank more often or less often?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Based on Baumol (1952). Money in your savings
account earns interest at a 3% annual rate. Each time
you go to the bank, you waste 15 minutes in line, and
your time is worth $10 per hour. During each year,
you need to withdraw $10,000 to pay your bills.
a. How often should you go to the bank?
b. Each time you go to the bank, how much money
should you withdraw?
c. If your need for cash increases, will you go to the
bank more often or less often?
d. If the interest rate increases, will you go to the
bank more often or less often?
e. If the bank adds more tellers, will you go to the
bank more often or less often?
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