Number of

Switches
0
1
2
3
4
5
6
7
8

Average
Money
Holdings
$750.00
375.00
250.00
187.50
150.00
125.00
107.14
93.75
83.33

Average
Bond
Holdings
$0.00
375.00
500.00
562.50
600.00
625.00
642.86
656.25
666.67

Interest
Earned

Cost of
Switching

Net Profit

$0.00
37.50
50.00
56.25
60.00
62.50
64.29
65.63
66.67

$0.00
4.00
8.00
12.00
16.00
20.00
24.00
28.00
32.00

$0.00
33.50
42.00
44.25
44.00
42.5
40.29
37.63
34.67

Interest
Earned

Cost of
Switching

Net Profit

$0.00
56.25
75.00
84.38
90.00
93.75
96.43
98.44
100.00

$0.00
4.00
8.00
12.00
16.00
20.00
24.00
28.00
32.00

$0.00
52.25
67.00
72.38
74.00
73.75
72.43
78.44
68.00

Interest
Earned

Cost of
Switching

Net Profit

$0.00
75.00
100.00
112.50
120.00
125.00
128.57
131.25
133.33

$0.00
4.00
8.00
12.00
16.00
20.00
24.00
28.00
32.00

$0.00
71.00
92.00
100.50
104.00
105.00
104.57
103.25
101.33

R=10%
Optimal Money Holdings: $187.50
Number of
Switches
0
1
2
3
4
5
6
7
8

Average
Money
Holdings
$750.00
375.00
250.00
187.50
150.00
125.00
107.14
93.75
83.33

Average
Bond
Holdings
$0.00
375.00
500.00
562.50
600.00
625.00
642.86
656.25
666.67

R=15%
Optimal Money Holdings: $150.00
Number of
Switches
0
1
2
3
4
5
6
7
8

Average
Money
Holdings
$750.00
375.00
250.00
187.50
150.00
125.00
107.14
93.75
83.33

R=20%
Optimal Money Holdings: $125.00

Average
Bond
Holdings
$0.00
375.00
500.00
562.5
600.00
625.00
642.86
656.25
666.67

140
133.33

131.25

128.57

125

120

120
112.5

100

100

98.44

100

96.43

93.75

90
84.38

80

75
66.67

65.63

60

10

75

15

64.29

62.5

60

56.25

20

56.25
50

40

37.5

20

0
83.33

93.75

107.14

125

150

187.5

250

375

750

Mr. Peabody should consider the amount of money to hold and the interest rate.
It is because there is a negative relation between the two. He should also know the
optimal money holding for him to gain more profit.
From the optimal money holdings of $187.50 at 10% interest rate, if increased to
15% the optimal money holdings will decrease to $150.00. If increased to 20%, it will
further decrease to $125.00.
The graph slopes downward because as shown in the tables and in the graph
itself, there is a negative relation between the amount of money demanded and the
interest earned. As the interest rate decrease, the more money in average is held, vise
versa.