Halliday Inc

Multiple Choice

Halliday Inc.receives a $2 million payment once a year.Of this amount, $700,000 is needed for cash payments made during the next year.Each time Halliday deposits money in its account, a charge of $2.00 is assessed to cover clerical costs.If Halliday can hold marketable securities that yield 5 percent, and then convert these securities to cash at a cost of only the $2 deposit charge, what is the total cost for one year of holding the minimum cost cash balance according to the Baumol model?

A) $7,483
B) $187
C) $3,741
D) $374
E) $748