Answered Essay: he employee credit union at State University is planning the allocation of funds for the coming year. The cred

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 12
Other secured loans 14
Signature loans 13
Risk-free securities 9

The credit union will have $1.3 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 $1.3 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.


Expert Answer

  • Step 1: Update all the given details in the problem along with constraints as shown in the above table
    Step 2: We are going to solve this problem using Excel Solver.
    Step 3: Click on the ‘data’ tab in the menu bar and go to ‘solver’ option.
    Set the objective function as ‘max’ and fill the cell C31
    In the changing cell option, choose C20:C24

    Step 4:

    Now add all the constraints given in the problem. The added details in the solver are as shown below. Once, we click solve, we find the above values.

    Note: Since I created this as a table in a spreadsheet, took a screenshot from the excel. Directly viewing the answer might not be clear. To view this answer clearly, right click on the answer image and save it to your desktop, so they are very clear and legible.

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