Formulate a LP model for the OECS bank that will maximize net returns from the loans division anda separate model for the Mutual Funds Division including ratio constraints .For the Loan portfolio d) Home loans must equal at least 50% of the personal, car and homes loanse) The bank also has a stated policy of not allowing the overall ratio of bad debts on all loans toexceed 5 %. g) Generate the non-negative constraint OECS Bank has both a loans division and mutual funds division. It has allocated $40.0M to financeits loan portfolio. Its operations manager is asked to build an LP model to help guide companydecisions as to how to disburse the revolving fund across different loan categories. The operationsmanager garnered the following data on available types of loans based on market research of theindustry:Types of loanPersonalInterest rateBad debt ratio0.15.10Car0.200.04Home0.170.02Small and medium enterprises0.250.15Commercial0.100.02The Bank's net return is interest rate net of Bad debt. Revenue from interest is gained only from goodloans.The mutual funds Division has allocated $5.0M and is currently looking for investment opportunitiesto invest these funds, The financial analyst suggested that all new investments be made in the oilindustry, steel industry or in government bonds. The analyst identified five investment opportunities:two from the oil industry, two from the steel and government bonds.Types of opportunitiesАВС oilReturns0.095XZY oil0.085Mona steel0.04TNT steel0.05Government Bonds0.015

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Answered: loans e) The bank also has a stated…

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

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Publisher:NEWNAN

Chapter1: Making Economics Decisions

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Formulate a LP model for the OECS bank that will maximize net returns from the loans division and
a separate model for the Mutual Funds Division including ratio constraints .
For the Loan portfolio

d) Home loans must equal at least 50% of the personal, car and homes loans
e) The bank also has a stated policy of not allowing the overall ratio of bad debts on all loans to
exceed 5 %.
g) Generate the non-negative constraint

OECS Bank has both a loans division and mutual funds division. It has allocated $40.0M to finance
its loan portfolio. Its operations manager is asked to build an LP model to help guide company
decisions as to how to disburse the revolving fund across different loan categories. The operations
manager garnered the following data on available types of loans based on market research of the
industry:
Types of loan
Personal
Interest rate
Bad debt ratio
0.15
.10
Car
0.20
0.04
Home
0.17
0.02
Small and medium enterprises
0.25
0.15
Commercial
0.10
0.02
The Bank's net return is interest rate net of Bad debt. Revenue from interest is gained only from good
loans.
The mutual funds Division has allocated $5.0M and is currently looking for investment opportunities
to invest these funds, The financial analyst suggested that all new investments be made in the oil
industry, steel industry or in government bonds. The analyst identified five investment opportunities:
two from the oil industry, two from the steel and government bonds.
Types of opportunities
АВС oil
Returns
0.095
XZY oil
0.085
Mona steel
0.04
TNT steel
0.05
Government Bonds
0.015

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