The National Credit Union has $250,000available to invest in a 12-month commitme
ID: 2661402 • Letter: T
Question
The National Credit Union has $250,000available to invest in a 12-month commitment. The money can beplaced in Treasury notes yielding an 7% return or in municipalbonds at an average rate of return of 9%. Credit union regulationsrequire diversification to the extent that at least 50% of theinvestment be placed in Treasury notes. Because of defaults in suchmunicipalities as Cleveland and New York, it is decided that nomore than 40% of the investment be placed in bonds.
How much should the National Credit Unioninvest in Treasury notes so as to maximize its return oninvestment?
Round your answer to the nearest wholenumber; for example,123,456 .
How much should the National Credit Unioninvest in municipal bonds so as to maximize its return oninvestment?
Round your answer to the nearest wholenumber; for example,123,456 .
What is the maximal return oninvestment?
$
Round your answer to the nearest wholenumber; for example,12,345 .
The National Credit Union has $250,000available to invest in a 12-month commitment. The money can beplaced in Treasury notes yielding an 7% return or in municipalbonds at an average rate of return of 9%. Credit union regulationsrequire diversification to the extent that at least 50% of theinvestment be placed in Treasury notes. Because of defaults in suchmunicipalities as Cleveland and New York, it is decided that nomore than 40% of the investment be placed in bonds.
(a)How much should the National Credit Unioninvest in Treasury notes so as to maximize its return oninvestment?
Round your answer to the nearest wholenumber; for example,123,456 .
(b)How much should the National Credit Unioninvest in municipal bonds so as to maximize its return oninvestment?
Round your answer to the nearest wholenumber; for example,123,456 .
(c)What is the maximal return oninvestment?
$
Round your answer to the nearest wholenumber; for example,12,345 .
Explanation / Answer
Since the municipal bonds have a higher average rate of return, theNational Credit Union should prefer to invest as much as is allowedin municipal bonds. The total amount to be invested in municipal bonds is $250,000 *40% = $100,000 (Answer to part b) The rest should be invested in treasury notes $250,000 - $100,000 =$150,000 (Answer to part a) Maximum return on investment: $150,000 * 0.07 + $100,000 * 0.09 = $19,500
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