An Introduction to Management Science 13th Edition by David Anderson,Dennis Sweeney ,Thomas Williams ,Jeffrey Camm, Kipp Martin

Exercise 9

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 income. The various revenue-producing investments together with annual rates of return are as follows:
The credit will have $2 million available for investment during the coming year.
State laws and credit union policies impose the following restriction on the composition of the loans and investments.
• Risk-free securities may not exceed 30% of the total funds available, for 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 million be allocated to each of the loan/investment alternatives to maximize total annual return? What is the projected total annual return?