Credit Union Fund Allocation.

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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. LO 2
Type of Loan/Investment Annual Rate of Return (%)
Automobile loans 8
Furniture loans 10
Other secured loans 11
Signature loans 12
Risk-free securities 9
The credit union will have S2 million available for investment during the coming year. State laws and credit union policies impose the following restriction. on the composition of the loam 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 t exceed the automobile loans.
• Other secured loans plus signature loans may not exceed the funds invested in risk-free securities.
a. How should the $2 million be allocated to each of the loan/investment alternatives to maximize total annual return?
b. What is the projected total annual return?

 

 

 

Sample Solution

Section I: INTRODUCTION TO THE STUDY Introduction The country is encountering a basic deficiency of medical care suppliers, a lack that is supposed to increment in the following five years, similarly as the biggest populace in our country’s set of experiences arrives at the age when expanded clinical consideration is vital (Pike, 2002). Staffing of emergency clinics, facilities, and nursing homes is more basic than any time in recent memory as the huge quantities of ‘gen X-ers’ start to understand the requirement for more continuous clinical mediation and long haul care. Interest in turning into a medical caretaker has disappeared lately, likely because of the historical backdrop of the extraordinary and requesting instructive cycle, low compensation, firm and extended periods of time, and fast ‘wear out’ of those rehearsing in the calling (Wharrad, 2003). A complex oversaw care climate in this country is restricting the dollars accessible to be spent on nursing care. Numerous wellbeing callings, particularly

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