M and B 2, 2nd Edition by Dean Croushore – Test Bank

Chapter 11—Modeling Money

MULTIPLE CHOICE

1. Someone who visits the ATM once every 8 days, and who spends $25 per day, has an average cash balance of
a. $12.50.
b. $25.
c. $100.
d. $200.

ANS: C PTS: 1 DIF: Moderate
TOP: The ATM Model of the Demand for Cash TYP: Conceptual

2. Someone who visits the ATM once every 7 days, and who has an average cash balance of $70, spends ____ per day.
a. $5
b. $10
c. $15
d. $20

ANS: D PTS: 1 DIF: Moderate
TOP: The ATM Model of the Demand for Cash TYP: Conceptual

3. Someone who has an average cash balance of $45, and who spends $15 per day, visits the ATM once every ____ days.
a. 4
b. 5
c. 6
d. 7

ANS: C PTS: 1 DIF: Moderate
TOP: The ATM Model of the Demand for Cash TYP: Conceptual

4. If the cost of going to the ATM is $1 and the nominal interest rate is 5 percent, someone who has a 15 percent probability of having his cash lost or stolen and who spends $10 each day, has the following total cost of holding cash.
a. (182.5/T) + (0.2  T)
b. (182.5/T) + (0.2  T)
c. (365/T) + (0.5  T)
d. (365/T) + T

ANS: D PTS: 1 DIF: Moderate
TOP: The ATM Model of the Demand for Cash TYP: Conceptual

5. If the cost of going to the ATM is $2 and the nominal interest rate is 1 percent, someone who has a 9 percent probability of having his cash lost or stolen and who spends $15 each day, has the following total cost of holding cash.
a. (365/T) + (0.75  T)
b. (730/T) + (0.75  T)
c. (730/T) + (1.5  T)
d. (365/T) + (1.5  T)

ANS: B PTS: 1 DIF: Moderate
TOP: The ATM Model of the Demand for Cash TYP: Conceptual

6. If the nominal interest rate is 5 percent, someone who has a 15 percent probability of having his cash lost or stolen and who spends $10 each day, and who has the total cost of holding cash = (365/T) + T, faces a cost of going to the ATM of
a. $1.
b. $2.
c. $3.
d. $4.

ANS: A PTS: 1 DIF: Challenging
TOP: The ATM Model of the Demand for Cash TYP: Conceptual

7. If the cost of going to the ATM is $1 and the nominal interest rate is 5 percent, someone who spends $10 each day and has the total cost of holding cash = (365/T) + T, has a ____ probability of having his cash lost or stolen.
a. 5 percent
b. 10 percent
c. 15 percent
d. 20 percent

ANS: C PTS: 1 DIF: Challenging
TOP: The ATM Model of the Demand for Cash TYP: Conceptual

8. Suppose someone’s cost of going to the ATM is $1.50, there is a 12 percent probability of having his cash lost or stolen, and he spends $5 each day. If his total cost of holding cash = (547.50/T) + (0.375  T), then the nominal interest rate is
a. 1 percent.
b. 2 percent.
c. 3 percent.
d. 4 percent.

ANS: C PTS: 1 DIF: Challenging
TOP: The ATM Model of the Demand for Cash TYP: Conceptual

9. If the nominal interest rate is 3 percent and the cost of going to the ATM is $1.50, someone who has a 12 percent probability of having his cash lost or stolen and has the total cost of holding cash = (547.50/T) + (0.375  T) spends ____ per day.
a. $20
b. $15
c. $10
d. $5

ANS: D PTS: 1 DIF: Challenging
TOP: The ATM Model of the Demand for Cash TYP: Conceptual

10. If the cost of going to the ATM is $1 and the nominal interest rate is 5 percent, someone who has a 15 percent probability of having his cash lost or stolen and spends $10 each day will go to the ATM once every ____ days.
a. 10
b. 13
c. 16
d. 19

ANS: D PTS: 1 DIF: Challenging
TOP: The ATM Model of the Demand for Cash TYP: Conceptual