What effect does increasing the standard deviation in daily cash flows have on the cash return point in the Miller-Orr model?
A) It will cause the cash return point to increase.
B) It will cause the cash return point to decrease.
C) It has no impact on the cash return point.
D) It will cause the cash return point to first increase, then decrease.

Question

Quizplus · Accepted Answer

Increasing the standard deviation in daily cash flows in the Miller-Orr model leads to a higher cash return point. This is because a higher standard deviation indicates greater volatility, requiring a larger buffer of cash to safely meet unexpected needs.

What Effect Does Increasing the Standard Deviation in Daily Cash