Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The employee credit union at State University is planning the allocation of funds for the coming year. The credit union makes four types of loans

The employee credit union at State University is planning the allocation of funds for the coming year. The credit union makes four types of loans to its members. In addition, the credit union invests in risk-free securities to stabilize income. The various revenue-producing investments together with annual rates of return are as follows:
Type of Loan/Investment Annual Rate of Return (%)
Automobile loans 9
Furniture loans 11
Other secured loans 12
Signature loans 13
Risk-free securities 10
The credit union will have $2.3 million available for investment during the coming year. State laws and credit union policies impose the following restrictions on the composition of the loans and investments:
Risk-free securities may not exceed 30% of the total funds available for investment.
Signature loans may not exceed 10% of the funds invested in all loans (automobile, furniture, other secured, and signature loans).
Furniture loans plus other secured loans may not exceed the automobile loans.
Other secured loans plus signature loans may not exceed the funds invested in risk-free securities.
How should the $2.3 million be allocated to each of the loan/investment alternatives to maximize total annual return?
Type of Loan/Investment Fund Allocation
Automobile loans $
Furniture loans $
Other secured loans $
Signature loans $
Risk-free securities $
What is the projected total annual return?
Annual Return = $

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Principles Of Managerial Finance

Authors: Chad J. Zutter, Scott Smart

16th Edition

0136945880, 978-0136945888

More Books

Students also viewed these Finance questions

Question

Summarize the findings of psychotherapy efficacy studies.

Answered: 1 week ago