Abstract
Maselia Ltd is a building contractor. At the end of May 1989, it has just received a progress payment of £25000 from a client, and wants to invest this money in a way that will maximise its expected net return. It can opt only for short-term investments, however, because the money will soon be required to meet payments to a sub-contractor. These payments will be made at the month-ends 1, 2, 3 and 4 months hence, but the amounts due at each of these times will depend upon the progress that the sub-contractor has made with his work. The management of Maselia Ltd do not feel that they can predict the progress that will be made with a great deal of confidence, because it will be strongly influenced by the effect of differing weather conditions upon the state of the building site. However, they do feel able to draw up a probability tree specifying fifteen possible sequences of payments to the subcontractor over the coming 4 months, and associating probabilities with each of these sequences. The probability tree is given in Figure 14.1; on it, May is referred to as month 0, June as month 1, July as month 2, August as month 3 and September as month 4. Each sequence of payments is labelled with a number.
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© 1986 Kenneth P. Gee
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Gee, K.P. (1986). Short-term Investment of Cash Balances. In: Advanced Management Accounting Problems. Palgrave, London. https://doi.org/10.1007/978-1-349-18147-6_33
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DOI: https://doi.org/10.1007/978-1-349-18147-6_33
Publisher Name: Palgrave, London
Print ISBN: 978-0-333-36270-9
Online ISBN: 978-1-349-18147-6
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