Question
A Bank is developing a loan policy of $ 10 million, for the allocation of capital as follows: Type of loan Interest Rate % of
A Bank is developing a loan policy of $ 10 million, for the allocation of capital as follows:
| Type of loan | Interest Rate | % of debt not paid |
| Personal | 0.15 | 0.1 |
| Automobile | 0.14 | 0.07 |
| House | 0.13 | 0.01 |
| Agricultural | 0.125 | 0.05 |
| Commercial | 0.11 | 0.02 |
Unpaid debts are not recovered and do not produce interest income. To compete with other banks the bank needs to allocate a minimum of 40% of the funds to agricultural and commercial loans. To help the construction industry in your region, home loans must represent a minimum of 30% of all your loans. Also, the bank has an explicit policy that does not allow the general ratio of bad loans among all loans to be greater than or equal to 4%.
What is the loan designation to maximize the bank's profit? What is its maximum utility?
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Banks increase profits by using leverage sometimes too much leverage which helped precipitate the Great Recession of 2007 to 2009 Profits can be measured as a return on assets and as a return on equit...
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Financial Algebra advanced algebra with financial applications
Authors: Robert K. Gerver
1st edition
978-1285444857, 128544485X, 978-0357229101, 035722910X, 978-0538449670
