1. The Employee Credit Union at Directional State University is planning the all
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Question
1. The Employee Credit Union at Directional State University is planning the allocation of funds for the coming year. ECU makes four types of loans and has three additional investment instruments. Each loan/investment has a corresponding risk and liquidity factor (on a scale of 0-100, with 100 being the most risky/liquid). The various revenue-producing instruments are summarized in the table below: Instrument Annual Rate of Return (%) Risk Factor Liquidity Factor Automobile loans 8 50 0 Furniture loans 10 60 0 Other secured loans 11 70 0 Unsecured loans 14 80 0 Risk-free securities 5 0 100 Corporate stock fund 9 60 90 Corporate bond fund 8 50 80
ECU has $2,000,000 available for investment during the coming year. However, state laws and pesky stakeholders impose certain restrictions on choice of investment instruments. Risk-free securities may not exceed 40% of total funds available for investment. Unsecured loans may not exceed 10% of total funds invested in loans. The funds invested in automobile loans must not be less than the total of funds invested in furniture and other secured loans. The average risk factor may not exceed 60, and the average liquidity factor must be at least 40. Formulate a linear program for ECU. (14) Check each of the following that apply.
There are seven decision variables ____
There are six constraints (not counting non-negativity).____
We determine the average risk factor by summing risk values and dividing by 7.____
Risk-free security total investment may exceed $800,000.____
All $2,000,000 must be invested.____
This is a maximization problem.____
This problem cannot be run as an integer program.____
Explanation / Answer
Here, the statements that are true are
There are seven variables.
There are 6 constraints.
Risk-free securities may not exceed 40% of total funds available for investment. Unsecured loans may not exceed 10% of total funds invested in loans. The funds invested in automobile loans must not be less than the total of funds invested in furniture and other secured loans. The average risk factor may not exceed 60, and the average liquidity factor must be at least 40.
Risk free total inverstment can exceed 800000. Since, Risk-free securities may not exceed 40% of total funds available for investment which is 800000.
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