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:

Accrued Vacation Benefits

The amount of vacation time earned by employees but not yet taken or paid out, often recorded as a liability on the employer's balance sheet.

Adjusting Entry

An accounting entry made in the general ledger to update the book values of assets, liabilities, revenues, and expenses at the end of an accounting period.

Estimated Liabilities

Obligations that a company expects to settle in the future, the amount and/or timing of which are uncertain.

Unearned Revenues

Money received by a company for goods or services yet to be provided, recognized as a liability until the service or good is delivered.