
Practical Management Science
6th Edition
ISBN: 9781337406659
Author: WINSTON, Wayne L.
Publisher: Cengage,
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Transcribed Image Text:Cengage
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.
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
Furniture loans
Other secured loans
Type of Loan/Investment
Automobile loans
7
Furniture loans
Other secured loa
10
Signature loans
Risk-free securities
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.
Signature loans
Risk-free securities
11
• 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?
12
8
Fund Allocation
630000
170000
460000
Q
140000
600000

Transcribed Image Text:How should the $2.3 million be allocated to each of the loan/investment alternatives to maximize total annual returr
Type of Loan/Investment
Automobile loans
Furniture loans
Other secured loans
Signature loans
Risk-free securities
What is the projected total annual return?
Annual Return =
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Fund Allocation
188800
630000
170000
460000
140000
600000
*
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