The NationalCredit Union has $250,000 available to invest in a 12-monthcommitmen
ID: 2661401 • Letter: T
Question
The NationalCredit Union has $250,000 available to invest in a 12-monthcommitment. The money can be placed in Treasury notes yielding an12% return or in municipal bonds at an average rate of return of9%. Credit union regulations require diversification to the extentthat at least 50% of the investment be placed in Treasury notes.Because of defaults in such municipalities as Cleveland and NewYork, it is decided that no more than 40% of the investment beplaced in bonds.
How much shouldthe National Credit Union invest in Treasury notes so as tomaximize its return on investment?
Round youranswer to the nearest whole number; for example,123,456 .
How much shouldthe National Credit Union invest in municipal bonds so as tomaximize its return on investment?
Round youranswer to the nearest whole number; for example,123,456 .
What is themaximal return on investment?
$
Round youranswer to the nearest whole number; for example,12,345 .
The NationalCredit Union has $250,000 available to invest in a 12-monthcommitment. The money can be placed in Treasury notes yielding an12% return or in municipal bonds at an average rate of return of9%. Credit union regulations require diversification to the extentthat at least 50% of the investment be placed in Treasury notes.Because of defaults in such municipalities as Cleveland and NewYork, it is decided that no more than 40% of the investment beplaced in bonds.
(a)How much shouldthe National Credit Union invest in Treasury notes so as tomaximize its return on investment?
Round youranswer to the nearest whole number; for example,123,456 .
(b)How much shouldthe National Credit Union invest in municipal bonds so as tomaximize its return on investment?
Round youranswer to the nearest whole number; for example,123,456 .
(c)What is themaximal return on investment?
$
Round youranswer to the nearest whole number; for example,12,345 .
Explanation / Answer
Since treasury notes have a higher return than municipal bonds, theNational Credit Union should strive to invest as much as possibleinto treasury notes. There is no upper limit on how much the CreditUnion can put into treasury notes, so they should put everythinginto treasury notes. a) All $250,000. b) $0. c) Maximum return on investment: $250,000 * 0.12 = $30,000
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