A Finance Company Has a Total of $15 Million Earmarked

question 3

Multiple Choice

A finance company has a total of $15 million earmarked for homeowner and auto loans. On the average, homeowner loans have a 10% annual rate of return, whereas auto loans yield a 12% annual rate of return. Management has also stipulated that the total amount of homeowner loans should be greater than or equal to 4 times the total amount of automobile loans. Determine the total amount of loans of each type the company should extend to each category in order to maximize its returns.

• A) $12 million in homeowner loans, $3 million in auto loans; optimal returns $1.56 million
• B) $3 million in homeowner loans, $12 million in auto loans; optimal returns $1.74 million
• C) $12 million in homeowner loans, $3 million in auto loans; optimal returns $1.74 million
• D) $3 million in homeowner loans, $12 million in auto loans; optimal returns $1.56 million

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Definitions:

Supply Chain

The network between a company and its suppliers to produce and distribute a specific product to the final buyer, encompassing all stages of processing and shipping.

Inventories

Stocks of goods and materials that a company holds for the purpose of resale or production.

Inventory

The total quantity of goods and materials held in stock by a business, warehouse, or retail location.

Overstocking

The practice of holding more inventory than is necessary, often leading to excess stock that is difficult to sell.