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# Allocation of Funds: LP Problem

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 returns are as follows: 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 has \$2,000,000 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 \$2,000,000 be allocated to each of the loan/investment alternatives to maximize total return? What is the projected total annual return? Formulate the problem and solve it on a computer by using the Microsoft's Excel. You need to submit the formulation as well as the computer output.

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