Answer (C) is correct . The return on marketable securities is the opportunity cost of idle cash, i.e., the return that cash could be earning if it were invested at the market rate rather than held in a noninterest bearing account. This return is the denominator of the optimal balance formula provided above. Thus, an increase in the denominator decreases the optimal cash balance.
Answer (A) is incorrect because An increase in the uncertainty of cash outflows would require an increase in the optimal cash balance.
Answer (B) is incorrect because Since the cost of a security trade is in the numerator of the formula, an increase would cause an increase in the overall result.
Answer (D) is incorrect because An increase in cash requirements would cause an increase in the optimal cash balance.
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An increase in which one of the following would result in a decrease in the optimal cash balance?