GFOA CPFO Exam - Topic 1 Question 76 Discussion

Actual exam question for GFOA's CPFO exam

Question #: 76
Topic #: 1

The Unites Way receives $1,500,000 in funds in a lump sum at the beginning of the year and has constant cost and predictable annual cash outlays. Eight percent is estimated to be earned at securities with each security transaction costing $40 plus 0.5 percent of the dollar amount received. What will be the optimum security scale using Baumol Model?

A$38700

B$38730

C$38830

DNone of these

Show Suggested Answer

Suggested Answer: A

by Valentin at Oct 18, 2023, 04:38 AM

Limited Time Offer

25%

Off

Get Premium CPFO Questions as Interactive Web-Based Practice Test or PDF

Contribute your Thoughts:

Submit Cancel

Carma

10 months ago

Is it really that straightforward? I have my doubts!

upvoted 0 times

...

Jamal

10 months ago

I agree, $38,700 seems right based on the calculations.

upvoted 0 times

...

Brittani

11 months ago

Wait, how can we be sure about those transaction costs?

upvoted 0 times

...

Letha

11 months ago

I think it's definitely around $38,700.

upvoted 0 times

...

Naomi

11 months ago

The Baumol Model helps determine optimal cash management.

upvoted 0 times

...

Cyndy

11 months ago

I feel like the answer might be around $38,700, but I’m not confident. I should have reviewed the calculations more thoroughly before the exam.

upvoted 0 times

...

Mertie

11 months ago

If I recall correctly, we need to find the balance between the transaction costs and the opportunity cost of holding cash. I hope I remember the formula right!

upvoted 0 times

...

Lettie

12 months ago

I think we need to consider the fixed costs and the interest earned on the funds. I practiced a similar question, but the numbers were different.

upvoted 0 times

...

Arminda

12 months ago

I remember the Baumol Model focuses on minimizing transaction costs, but I'm not entirely sure how to calculate the optimum scale here.

upvoted 0 times

...

Sharika

12 months ago

I've got this! The Baumol model formula will give me the optimal security scale. I just need to plug in the numbers and do the calculation.

upvoted 0 times

...

Ty

12 months ago

Okay, let me think this through step-by-step. I need to find the optimal number of security transactions that minimizes the total costs. The key variables are the lump sum, interest rate, and transaction costs.

upvoted 0 times

...

Quinn

12 months ago

Hmm, I'm a bit unsure about how to approach this. The Baumol model is something we covered, but I'm not totally confident in applying it to a specific problem like this.

upvoted 0 times

...

Ming

12 months ago

This looks like a classic Baumol model problem. I'll need to calculate the optimal security scale based on the given information about the lump sum, interest rate, and transaction costs.

upvoted 0 times

...

Delmy

1 year ago

I'm a bit confused about the authorization modes and admission controller mentioned in the question. I'll need to make sure I understand how those work before I attempt to implement the changes.

upvoted 0 times

...

Paris

1 year ago

I'm not totally sure about this one. The options seem to be getting at different aspects of value management. I'll have to review my notes and think it through.

upvoted 0 times

...

Stephaine

1 year ago

I feel like the Baumol Model is just a fancy way of saying 'How to make the most of your money while spending the least on transaction fees.' I'm going with C) $38,830 - it's the answer that sounds the most like it was calculated by a robot, which is probably the right way to go here.

upvoted 0 times

Donette

1 year ago

I'm not sure about the answer, but I think it's definitely not D) None of these.

upvoted 0 times

...

Hassie

1 year ago

I'm going with C) $38,830. It sounds like the most precise option.

upvoted 0 times

...

Denae

1 year ago

I disagree, I believe the answer is B) $38,730. It just makes more sense to me.

upvoted 0 times

...

Rory

1 year ago

I think the answer is A) $38,700. It seems like the most logical choice.

upvoted 0 times

...

Sue

1 year ago

This question is making my head spin. Why can't they just ask something simple, like 'What's the meaning of life?' Oh, wait, that's even harder. Anyway, I'm going with D) None of these, because why not?

upvoted 0 times

...

Ben

1 year ago

Okay, let's break this down. We've got a lump sum of $1.5 million, 8% interest, and transaction costs. I'm leaning towards A) $38,700, but I'm open to being convinced otherwise.

upvoted 0 times

Amber

1 year ago

C) Yeah, A) $38,700 is the optimum security scale based on the Baumol Model calculations.

upvoted 0 times

...

Sabine

1 year ago

B) I agree, A) $38,700 makes the most sense given the information provided.

upvoted 0 times

...

Julio

1 year ago

A) $38,700 seems like the best option considering the interest and transaction costs.

upvoted 0 times

...

Ula

1 year ago

Hmm, the Baumol Model, huh? Sounds like something straight out of a finance textbook. Let's see, $1.5 million in funds, 8% interest, and transaction costs. I'm going with B) $38,730 - it just feels right, you know?

upvoted 0 times