# Annual Rates of Return

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Trying to solve below problem to figure out what is going to be the total annual return (percentage)?

____

The employee credit union at State University is planning the allocation of funds for the coming year. The credit union make 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 8

Furniture loans 10

Other secured loans 11

Signature loans 12

Risk-free securities 9

The credit union will have $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).

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 annual return? What is the projected annual return?

---

I come up with the equation as:

max .08x1 + .1x2 + .11x3 + .12x4 + .09x5

st

x1 + x2 + x3 + x4 + x5 < 2000000

x5 < 600000

x4 < .1

x2 + x3 < .08

x3 + x4 < .09

.

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##### Solution Summary

The employee credit union at State University is planning the allocation of funds for the coming year. The credit union make 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 8

Furniture loans 10

Other secured loans 11

Signature loans 12

Risk-free securities 9

The credit union will have $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).

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 annual return? What is the projected annual return?

---

I come up with the equation as:

max .08x1 + .1x2 + .11x3 + .12x4 + .09x5

st

x1 + x2 + x3 + x4 + x5 < 2000000

x5 < 600000

x4 < .1

x2 + x3 < .08

x3 + x4 < .09

###### Education

- BSc , Wuhan Univ. China
- MA, Shandong Univ.

###### Recent Feedback

- "Your solution, looks excellent. I recognize things from previous chapters. I have seen the standard deviation formula you used to get 5.154. I do understand the Central Limit Theorem needs the sample size (n) to be greater than 30, we have 100. I do understand the sample mean(s) of the population will follow a normal distribution, and that CLT states the sample mean of population is the population (mean), we have 143.74. But when and WHY do we use the standard deviation formula where you got 5.154. WHEN & Why use standard deviation of the sample mean. I don't understand, why don't we simply use the "100" I understand that standard deviation is the square root of variance. I do understand that the variance is the square of the differences of each sample data value minus the mean. But somehow, why not use 100, why use standard deviation of sample mean? Please help explain."
- "excellent work"
- "Thank you so much for all of your help!!! I will be posting another assignment. Please let me know (once posted), if the credits I'm offering is enough or you ! Thanks again!"
- "Thank you"
- "Thank you very much for your valuable time and assistance!"

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