A Bank Is Attempting to Determine Where Its Assets Should

question 21

Essay

A bank is attempting to determine where its assets should be allocated in order to maximize its annual return.At present,$750,000 is available for investment in three types of mutual funds: A,B,and C.The annual rate of return on each type of fund is as follows: fund A,15%;fund B,12%;fund C;13%.The bank's manager has placed the following restrictions on the bank's portfolio:
• No more than 20% of the total amount invested may be in fund A.
• The amount invested in fund B cannot exceed the amount invested in fund C.
Determine the optimal allocation that maximizes the bank's annual return.

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Definitions:

Break-Even Point

The juncture where the overall expenses match the overall income, leading to neither a profit nor a loss.

Fixed Costs

Fixed costs are business expenses that remain constant regardless of production volume, such as rent, salaries, and insurance premiums.

Variable Costs

Costs that change in proportion to the level of goods or services produced by a business.

Net Income

The amount of profit remaining after all expenses, taxes, and costs have been deducted from total revenue.