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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. Furniture loans Other secured loans Signature loans Risk-free securities 7 Type of Loan/Investment Automobile loans 10 Furniture loans Other secured loans 11 The credit union will have $2 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: Signature loans Risk-free securities 12 • 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). 8 • 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 million be allocated to each of the loan/investment alternatives to maximize total annual return? Fund Allocation

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. Furniture loans Other secured loans Signature loans Risk-free securities 7 Type of Loan/Investment Automobile loans 10 Furniture loans Other secured loans 11 The credit union will have $2 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: Signature loans Risk-free securities 12 • 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). 8 • 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 million be allocated to each of the loan/investment alternatives to maximize total annual return? Fund Allocation

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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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 7 Furniture loans 10 Other secured loans Signature loans Risk-free securities . The credit union will have $2 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). Type of Loan/Investment Automobile loans Furniture loans 11 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 million be allocated to each of the loan/investment alternatives to maximize total annual return? Fund Allocation Other secured loans 12 Signature loans 8 Risk-free securities 00000
Transcribed Image Text: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 7 Furniture loans 10 Other secured loans Signature loans Risk-free securities . The credit union will have $2 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). Type of Loan/Investment Automobile loans Furniture loans 11 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 million be allocated to each of the loan/investment alternatives to maximize total annual return? Fund Allocation Other secured loans 12 Signature loans 8 Risk-free securities 00000
Type of Loan/Investment Annual Rate of Return (%) Automobile loans 7 Furniture loans 10 Other secured loans 11 Signature loans Risk-free securities The credit union will have $2 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: Type of Loan/Investment Automobile loans • 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 million be allocated to each of the loan/investment alternatives to maximize total annual return? Furniture loans 12 Other secured loans Signature loans Risk-free securities 8 Fund Allocation 00000 What is the projected total annual return? Annual Return $
Transcribed Image Text:Type of Loan/Investment Annual Rate of Return (%) Automobile loans 7 Furniture loans 10 Other secured loans 11 Signature loans Risk-free securities The credit union will have $2 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: Type of Loan/Investment Automobile loans • 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 million be allocated to each of the loan/investment alternatives to maximize total annual return? Furniture loans 12 Other secured loans Signature loans Risk-free securities 8 Fund Allocation 00000 What is the projected total annual return? Annual Return $
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