Lecture4-supplement - Loan Policy Model Thriftem Bank is in...

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Unformatted text preview: Loan Policy Model Thriftem Bank is in the process of devising a loan policy that involves a maximum of $12 million. The following table provides the pertinent data about available types of loans. Type of loan Interest rate Bad-debt ratio Personal .140 .10 Car .130 .07 Home .120 .03 Farm .125 .05 Commercial .100 .02 Competition with other financial institutions requires that the bank allocate at least 40% the funds to farm and commercial loans. To assist the housing industry in the region, home loans must equal at least 50% of the personal, car, and home loans. The bank also has a state policy of not allowing the overall ratio of bad debts on all loans to exceed 4%. 10 Loan Policy Model Formulation We try to determine the amount of loan in each category, so define the following decision variables (all in millions of dollars): x 1 = personal loans x 2 = car loans x 3 = home loans x 4 = farm loans x 5 = commercial loans The objective is to maximize the return which is the difference between interest revenue and lost bad debts. The interest isbetween interest revenue and lost bad debts....
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This note was uploaded on 09/27/2010 for the course GE 330 taught by Professor Staff during the Spring '08 term at University of Illinois, Urbana Champaign.

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Lecture4-supplement - Loan Policy Model Thriftem Bank is in...

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