Chemical Bank Is Attempting to Determine Where Its Assets Should

Essay

Chemical Bank is attempting to determine where its assets should be invested during the current year. At present, $800,000 is available for investment in bonds, home loans, auto loans, and personal loans. The annual rate of return on each type of investment is known to be the following: bonds, 12%, home loans, 18%, auto loans, 15%, personal loans, 22%. To ensure that the banks portfolio is not too risky, the bank's investment manager has placed the following restrictions on the bank portfolio:
∙ No more than 30% of the total amount invested may be in personal loans.
∙ The amount invested in home loans cannot exceed the amount invested in auto loans.
∙ The amount invested in personal loans cannot exceed the amount invested in bonds.
Determine how the bank can maximize the annual return on its investment portfolio.