Problem 9-03 (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 revenue producing investments together with annual rates of return are as follows:
Type of Loan/Investment
Annual Rate of Return (%)
Other secured loans
The credit union will have $1.8 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:
How should the $1.8 million be allocated to each of the loan/investment alternatives to maximize total annual return?
Other Secured Loans
Risk Free Loans
What is the projected total annual return?
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