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NYC NYC
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Simon's monthly starting balance is $5,000. Simon spends $300 per day. Initially, Simon keeps all of his income in a non interest-bearing checking account. Simon decided to change his strategy and at the beginning of each month he deposits one-third of his income into his checking account and buys two bonds with the remainder of his income. After 10 days he cashes in one bond and after 10 days after that he cashes in the other bond. Which of the following statements is true?
A) Simon's optimal money balance is $300.
B) The second strategy involves lower money management costs because Simon now earns interest on the bonds he has purchased.
C) If Simon uses either strategy, his average monthly balance is $2,500.
D) If the interest rate paid on bonds increases, the opportunity cost of Simon's original strategy is increased.
Textbook 
Principles of Macroeconomics

Principles of Macroeconomics


Edition: 11th
Authors:
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JesslynJesslyn
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NYC Author
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8 years ago
Thanks for answering Slight Smile
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