Question

Problem 4-03 (Algorithmic)

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 revenueproducing investments together with annual rates of return are as follows:

Type of Loan/Investment	Annual Rate of Return (%)
Automobile loans	8
Furniture loans	10
Other secured loans	11
Signature loans	12
Risk-free securities	9

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? Round your answers to the nearest dollar.

Automobile Loans	$
Furniture Loans	$
Other Secured Loans	$
Signature Loans	$
Risk Free Loans	$

What is the projected total annual return? Round your answer to the nearest dollar.

$  

Answer 1

.

Automobile Loans	$ 690,000
Furniture Loans	$ 230,000
Other Secured Loans	$ 460,000
Signature Loans	$ 230,000
Risk Free Loans	$ 690,000

Total annual return = $ 218,500

	Auto loans	Furniture	Other secured loans	Signature loans	Risk free securities
Amount	690000	230000	460000	230000	690000
Return	8%	10%	11%	12%	9%
						TOTAL
Amount of return	55200.00	23000.00	50600.00	27600.00	62100.00	218500.00
Constraints
Total amount	2300000	<=	2300000
Risk-free securities may not exceed 30% of the total funds available for investment.	690000	<=	690000
Signature loans may not exceed 10% of the funds invested in all loans (automobile, furniture, other secured, and signature loans).	230000	<=	230000
Furniture loans plus other secured loans may not exceed the automobile loans.	690000	<=	690000
Other secured loans plus signature loans may not exceed the funds invested in risk-free securities.	690000	<=	690000