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A bank make four kinds of loans to its personal customers and these loans yield the following annual interest rates to the bank. (i) First

  • A bank make four kinds of loans to its personal customers and these loans yield the following annual interest rates to the bank. (i) First mortgage 14% (ii) second mortgage 20% (iii) home improvement 20% (iv) personal overdraft 10% The bank has a maximum foreseeable lending capability of £ 250 million and is further constrained by the policies; 1. First mortgages must be at least 55% of all mortgage issued and at least 25% of all loans issued ( in £ terms) 2. Second mortgages can not exceed 25% of all loans issued ( in £ terms) 3. To avoid a public displeasure and introduction and a new windfall tax the average interest rate on all loans must not exceed 15%. REQUIRED Formulate the bank’s loan problem as an LP (linear programming) so as to maximize interest income whilst satisfying the policy limitations.

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