A bank has $684,000 in assets to allocate among investments in bonds, home mortgages, car loans, and personal loans. Bonds are expected to produce a return of 12%, mortgages 10.5%, car loans 11.5%, and personal loans 14.5%. To make sure the portfolio is nottoo risky, the bank wants to restrict personal loans to no more than the 25% of the total portfolio. The bank also wants to ensure that at least as much money is invested in mortgages as is invested in personal loans. The bank also wants to invest at least as much inbonds as they do in personal loans. (Let X₁, X₂, X3, and X4 be the amount (in dollars) invested in bonds, mortgages, car loans, and personal loans, respectively.)(a) Formulate an LP model for this problem with the objective of maximizing the expected return (in dollars) on the portfolio.MAX:Subject to:total amount spentamount for personal loansmortgages and personal loansbonds and personal loansX₁ X₂ X3 X4 ²0(b) Implement your model in a spreadsheet and solve it. What is the optimal solution?(X1₁ X₂ X3 X4) =

Decision Variables: Suppose-x1 be the amount invested in bondsx2 be the amount invested In…

Answered: A bank has $684,000 in assets to…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter9: Decision Making Under Uncertainty

Section: Chapter Questions

Problem 34P

See similar textbooks

Similar questions

A project does not necessarily have a unique IRR. (Refer to the previous problem for more information on IRR.) Show that a project with the following cash flows has two IRRs: year 1, 20; year 2, 82; year 3, 60; year 4, 2. (Note: It can be shown that if the cash flow of a project changes sign only once, the project is guaranteed to have a unique IRR.)
Your sister and her fiancé are planning on getting engaged (and later married) in the future. Wanting to start saving up for the wedding costs, they ask you having $60,000 saved four years from now. They also would like to withdraw $15,000 in a year to pay for the engagement rings. help them invest their money in the hopes of Besides their initial deposit, they also plan to make another deposit in three years as they are expected to receive an $8,000 settlement from a class-action lawsuit by then. There are one-year and two-year investments available for each year as well as a special three-year investment that becomes available in a year, shown in the diagram below. One-year investments return 2.5%, two-year investments return 6%, and the three-year investment return 10%. Formulate as a linear program using the variables that are listed on the diagram and solve to minimize the initial deposit your sister and her fiancé must make. Deposit (Xo) Present Хо1 Withdrawal Xo2 ($15,000) Year…
Lorna owns a home that is worth $385,000. She has a mortgage with a balance of $112,000. Calculate her equity in the home. $497,000 $76,000 $273,000 $245,000
Bruin Properties is in escrow to buy a 175,000 square foot shopping center in Camarillo, California for $35,000,000. Bruin Properties can borrow $24,000,000 fixed rate fully amortizing over 30 years at a 6.0% annual interest rate with equal monthly payments of principal and interest or it can borrow $28,000,000 fixed rate fully amortizing over 30 years at a 7.0% annual interest rate with equal monthly payments of principal and interest. What is the incremental annual borrowing cost for the additional $4,000,000 loan amount if each loan would be outstanding for the full 30 year term? a.13.0% b.12.4% c.11.5% d. 7.0%
Aventura Savings and Loan requires 15% down payment on a mortgage loan. What is the down payment needed to finance a $148,500 home?
Where a financial institution makes a loan commitment, the borrower, in drawing down on their loan commitment, causes increased cash flow needs by the DI to fund the loan commitments. There are three ways a DI can offset the effect of Asset-side liquidity risk such as drawing down of a loan commitment in all of the following sitiuations Except: a. Reduce excess cash reserves to minimum levels required to meet reserve requirements based on the decision made by management independant of regulatory requirements. b. Reduce balance sheet items such as retain earnings to the meet the minimum required capital levels. c. Taking offsetting measures such as borrowing funds or even purchasing funds on the money market. d. Reducing liquid type assets on their balance sheet such at T-bills by selling them.
money borrowed for personal reasons; to be repaid within a specific time frame and with added interest money borrowed for the purchase of real estate; to be repaid within a specific time frame and with added interest money borrowed for business reasons; to be repaid within a specific time frame and with added interest money borrowed for the purchase of a vehicle; to be repaid within a specific time frame and with added interest : Business Loan :: Auto Loan :: Mortgage Loan :: Personal Loan 1 4 6. 8. 9. Finish Si
On January 1, 2020, Naruto Company, a financial services firm, purchased P100,000, face value 5-vear bond of Wolverine Corporation for P108,660, a price that yields 5% on a stated interest rate of 7%. Interest is payable annually at December 31. Fair values at year-end are as follows: 105.7 December 31, 2020 December 31, 2021 December 31, 2022 December 31, 2023 106.0 106.5 107.5 Naruto's business model for managing debt securities of this type is collecting cash flows that are salely payment for principal and interest. Naruto did not exercise its option to measure the investments at fair value. Towards the end of 2022, after reviewing its strategic direction, Naruto decides to shut down its retail mortgage business and actively markets its debt investments portfolio in response to profit taking opportunities. Naruto sold the Wolverine Corporation bonds on May 31, 2023 @ 106 plus accrued interest. REQUIRED: How much interest income should Naruto recognize for the year 2020 as a result…
Donald Harris received a windfall and needs to invest it for tax reasons. He went to his brother-in-law, Joe Harris, who is a financial advisor. Joe prepared a matrix that illustrated the possible returns on investment for different investment strategies under different economic conditions. That matrix is given below. Donald Harris reads the Wall Drive Journal and came across an article that stated that the probability that there would be a major downturn would be 10%; the probability of a downturn would be 30%; the probability of an upturn would be 40%; and that the probability of a major upturn would be 20%. Based on these numbers, what investment strategy should Donald Harris adopt? Future Air Traffic Strategies Major Downturn Downturn Upturn Major Upturn Contrarian 20% 10% 5% -15% Risk Averse 2% 4% 7% 10% Growth -10% -8% 13% 20% Aggressive -25% -20% 11% 35% Group of answer choices
At age 25, Anthony establishes an Individual Retirement Account (IRA). If he invests P10,000 per year for 30 years in an ordinary annuity, the account earns 7.75% per year, how much will he have in the account at age 55?
Consider a project with the following cash flows: year 1, 2$400; year 2, $200; year 3, $600; year 4, 2$900; year 5, $1000; year 6, $250; year 7, $230. Assume a discount rate of 15% per year.a. Find the project’s NPV if cash flows occur at the ends of the respective years.b. Find the project’s NPV if cash flows occur at the beginnings of the respective years.c. Find the project’s NPV if cash flows occur at the middles of the respective years.
M-REITs, or mortgage REITs, primarily invest in real estate loans and mortgage-backed securities that are often below investment grade. When a mortgage REIT decided some years ago to re-securitize a substantial portion of its CMBS "BB" and "B" securities, it received surprisingly high investment grade ratings of "A" and "BBB" from Standard & Poor's on the new securities that were created from the cash flows of the underlying portfolio of non-investment grade rated securities. But when the financial markets began to fall a few months later, that mortgage REIT quickly went bankrupt and the value of its "A" and "BBB" investment grade rated re-securities fell substantially. The intended purpose of the ratings agencies is: To produce substantial profits for the rating agencies from the fees paid to them for giving higher ratings on investments than might otherwise be appropriate To help businesses and governments raise needed capital by providing them with the ratings they need to…

SEE MORE QUESTIONS

Recommended textbooks for you

Practical Management Science

Operations Management

ISBN:

9781337406659

Author:

WINSTON, Wayne L.

Publisher:

Cengage,

Practical Management Science

Operations Management

ISBN:

9781337406659

Author:

WINSTON, Wayne L.

Publisher:

Cengage,

SEE MORE TEXTBOOKS