Question

UMUC bank has a local subsidiary, which requires $75,000 cash every month. It uses $safe armored trucks service for cash delivery. Service company charges $500 for each delivery.

In order to send cash to its subsidiary, the bank has to liquidate part of its securities portfolio which generates 15% annual return.

How many armored truck service trips PER YEAR should the bank order?

(Hint: The annual rate of return in this question is given as 12 * actual monthly rate of return. You can round off to the nearest whole number,

for example if your answer is 17.62, you can answer 18.)

Answer 1

Maximum Optimum trip that should be undertaken in a mth.,

Equating the total delivery charges & the opportunity cost of loss of interest on $ 75000,

500*x=75000*15%/12

we get the no.of trips in a mth= 1.875

ie.1.875*12=

22.5

ie

23

Armored truck service trips PER YEAR the bank should order 23

Verification :
Delivery chgs.	22.5*500=	11250
loss of int.	22.5/1.875*75000*15%/12=	11250