Baumol and Miller-Orr OT

Question 1

Is Baumol useful?

Answer 1

The least useful of the 3 models relating to cash

Question 2

Baumol model calculations?

Answer 2

Selling costs + Lost interest - interest earned

Question 3

Economic quantity in baumol?

Answer 3

The same equation as EOQ model

Question 4

What is the Miller-Orr model?

Answer 4

Over time on average I need 10 in the bank (return point). If it goes over 18, cash goes on deposit and goes back to 10. If cash falls to 7, take money off deposit and goes back to 10

Question 5

How is lower limit calculated?

Answer 5

The absolute minimum cash they dare operate in. Is decided by the business

Question 6

How is upper limit calculated?

Answer 6

Lower limit + spread

Question 7

How is spread calculated?

Answer 7

3 * ((3/4 * transaction costs * variance)/interest rate)^1/3

Question 8

How is return point calculated?

Answer 8

Lower limit + (1/3)*Spread

Question 9

How to calculate variance?

Answer 9

(Standard deviation)^2