Author Question: What are the three motives for holding cash? What will be an ideal ... (Read 42 times)

jayhills49 · **on:** Jul 10, 2018

What are the three motives for holding cash?

What will be an ideal response?

Question 2

How much does Ralph need to invest today to have 150,000 in five years if he will earn 8 interest compounded quarterly on his investment? (Round to the nearest whole dollar)

A) 100,946
B) 102,041
C) 101,351
D) 73,171
E) 105,453

isabelt_18 · **Reply #1 on:** Jul 10, 2018

Answer to Question 1

The Transactions Motive: balances held for transaction purposes allow the firm to meet its cash needs that arise in the
ordinary course of doing business. The Precautionary Motive: precautionary balances serve as a buffer. This motive for
holding cash relates to the maintenance of balances used to satisfy possible, but as yet unknown, needs. The
Speculative Motive: cash is held for speculative purposes in order to take advantage of potential profit-making
situations. Construction firms that build private dwellings will, at times, accumulate cash in anticipation of a
significant drop in lumber costs.

Answer to Question 2

A