Question

A credit union wants to make investments in the following areas.

The information presented in the table below indicates the area of investment and the corresponding yearly return.

Type of investment and Annual Rate of Return(%)

Vehicle Loans 7%

Consumer Loans 9%

Other secured Loans 10%

Signature Loans 11%

Risk free Securities 8%

The firm will have a maximum of $2,500,000 available for investment during the coming year. In order to create a diverse portfolio the credit union has established the following investment restrictions:

∙ Risk free securities may not exceed 30% of the total funds invested, but must comprise at least 5% of the total funds invested.

∙ Signature loans may not exceed 12% of the funds invested in all loans (vehicle, consumer, other secured loans, and signature loans)

∙ Consumer loans plus other secured loans may not exceed the vehicle loans

∙ Other secured loans plus signature loans may not exceed the funds invested in risk free securities.

Create a linear programming model that allocated $2,500,000 to each alternative to maximize annual return?

Solve the formulation of the above problem in Excel

Answer 1

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