MORTGAGE INVESTMENT. Tritech Mortgage specializes in making first, second, and even third trust deed loans on residential properties and first trust deeds on commercial properties. Any funds not...

MORTGAGE INVESTMENT. Tritech Mortgage specializes in making first, second, and even third trust deed loans on residential properties and first trust deeds on commercial properties. Any funds not invested in mortgages are invested in an interest- bearing savings account. The following table gives the rate of return and the company’s risk level for each possible type of loan.

• Yearly return is maximized.

• At least $5,000,000 is to be available in a savings account for emergencies.

 • At least 80% of the money invested in trust deeds should be in residential properties.

 • At least 60% of the money invested in residential properties should be in first trust deeds.

• The average risk should not exceed 5.

a. What distribution of funding do you recommend? What is the rate of return on this distribution of funds?

 b. Suppose the rate of return on first trust deeds increases. What is the maximum rate of return so that your recommendation in part (a) remains optimal? What would be the overall rate of return on the investment if this rate were increased to its maximum limit?