Problem 4-03 (Algorithmic)

The employee credit union at State University is planning theallocation of funds for the coming year. The credit union makesfour types of loans to its members. In addition, the credit unioninvests in risk-free securities to stabilize income. The variousrevenueproducing investments together with annual rates of returnare 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 $2.1 million available for investmentduring the coming year. State laws and credit union policies imposethe following restrictions on the composition of the loans andinvestments:

• Risk-free securities may not exceed 30% of the total fundsavailable for investment.
• Signature loans may not exceed 10% of the funds invested in allloans (automobile, furniture, other secured, and signatureloans).
• Furniture loans plus other secured loans may not exceed theautomobile loans.
• Other secured loans plus signature loans may not exceed thefunds invested in risk-free securities.

How should the $2.1 million be allocated toeach of the loan/investment alternatives to maximize total annualreturn? Round your answers to the nearest dollar.

Automobile Loans	_____$
Furniture Loans	_____$
Other Secured Loans	____$
Signature Loans	_____$
Risk Free Loans	_____$

What is the projected total annual return? Round your answer tothe nearest dollar.

$ _________