The First Street Branch of Capitol Bank Has a Sum

question 111

Multiple Choice

The First Street branch of Capitol Bank has a sum of $70 million earmarked for home loans and commercial-development loans. The bank expects to realize and 8% annual rate of return on the home loans and a 6% annual rate of return on the commercial-development loans. Management has decided that the total amount of home loans is greater than or equal to 3 times the total amount of commercial-development loans. Owing to prior commitment, at least $11 million of the funds has been designated for commercial-development loans. Determine the amount of each type of loan the bank should extend to maximize it returns. What is the maximum return?

• A) Bank should extend $48 million in home loans, $48 million of commercial-development loans to attain a maximum return of $5.38 million.
• B) Bank should extend $59 million in home loans, $11 million of commercial-development loans to attain a maximum return of $5.38 million.
• C) Bank should extend $11 million in home loans, $59 million of commercial-development loans to attain a maximum return of $5.38 million.
• D) Bank should extend $11 million in home loans, $48 million of commercial-development loans to attain a maximum return of $5.38 million.
• E) Bank should extend $48 million in home loans, $11 million of commercial-development loans to attain a maximum return of $5.38 million.

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Definitions:

Accrued Loss

A loss that has occurred but has not yet been recorded in the accounts through the normal accounting process, often recognized through adjusting entries.

Major Categories

General classifications used in various contexts, such as financial accounting, to organize items or concepts into distinct groups based on similar characteristics.

Total Inventory

The sum value of all types of inventory a company holds, including raw materials, work-in-progress, and finished goods.

Gross Profit Ratio

A financial metric that shows the portion of sales revenue that exceeds the cost of goods sold, indicating efficiency in production and sales.