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Answer (A) is correct . The optimal amount of cash to be raised by selling securities is calculated by a formula similar to that used to determine the economic order quantity for inventory. ? Where:? T = Total cash needed for the period ? F = Cost of making a securities trade ? k = Opportunity cost of holding cash The optimal amount of cash to be raised by selling securities is inversely related to the rate of return forgone (opportunity cost) and directly related to the cost of the transaction.

Answer (B) is incorrect because A high (low) opportunity cost results in a lower (higher) optimal cash balance, whereas high (low) transaction costs result in a higher (lower) optimal cash balance.
Answer (C) is incorrect because A high (low) opportunity cost results in a lower (higher) optimal cash balance, whereas high (low) transaction costs result in a higher (lower) optimal cash balance.
Answer (D) is incorrect because A high (low) opportunity cost results in a lower (higher) optimal cash balance, whereas high (low) transaction costs result in a higher (lower) optimal cash balance.