(Solution) - Suppose that you can hold cash that pays no interest -(2025 Original AI-Free Solution)

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Suppose that you can hold cash that pays no interest or invest in securities that pay interest at 8%. The securities are not easily sold on short notice; therefore, you must make up any cash deficiency by drawing on a bank line of credit that charges interest at 10%. Should you invest more or less in securities under each of the following circumstances?
a. You are unusually uncertain about future cash flows.
b. The interest rate on bank loans rises to 11%.
c. The interest rates on securities and on bank loans both rise by the same proportion.
d. You revise downward your forecast of future cash needs.