A credit union wants to make investments in the following (see image)The firm will have $2,500,000 available for investment during the coming year. The following restrictions apply:Risk-free securities may not exceed 30% of the total funds, but must comprise at least 5% of the total.Signature loans may not exceed 12% of the funds invested in all loans (vehicle, consumer, other secured loans, and signature loans).Consumer loans plus other secured loans may not exceed the vehicleOther secured loans plus signature loans may not exceed the funds invested in risk-freeHow should the $2,500,000 be allocated to each alternative to maximize annual return?Formulate this problem as a Linear Programming model.Define decision variables.Define objective functionDefine the constraints Annual RateType of InvestmentVehicle loansof Return (%)7Consumer loansOther secured loans10Signature loansRisk-free securities118

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Answered: A credit union wants to make…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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A credit union wants to make investments in the following (see image)

The firm will have $2,500,000 available for investment during the coming year. The following restrictions apply:

Risk-free securities may not exceed 30% of the total funds, but must comprise at least 5% of the total.
Signature loans may not exceed 12% of the funds invested in all loans (vehicle, consumer, other secured loans, and signature loans).
Consumer loans plus other secured loans may not exceed the vehicle
Other secured loans plus signature loans may not exceed the funds invested in risk-free

How should the $2,500,000 be allocated to each alternative to maximize annual return?

Formulate this problem as a Linear Programming model.

Define decision variables.
Define objective function
Define the constraints

Annual Rate
Type of Investment
Vehicle loans
of Return (%)
7
Consumer loans
Other secured loans
10
Signature loans
Risk-free securities
11
8

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