Question

Mark has $100,000 to invest. His financial consultant advises him to diversify his investment in three types of bonds: short-term, intermediate-term, and long-term. The short-term bonds pay 4%, the intermediate-term bonds pay 5%, and the long-term bonds pay 6% simple interest per year. Mark wishes to realize a total annual income of 5.25%, with equal amounts invested in short- and intermediate-term bonds. How much should he invest in each type of bond?

Answer 1

Short-Term investment: 5000$

Intermediate-Term investment: 65000$

Long-Term investment: 30000$

Explanation:

To construct our first equation lets define sort-term bond investment as x, long-term investment as y.

So the equation is:

`x*0,04+(100000-x-y)*0,05+y*0,06=5250`

From the equation it is found that:

`y=25000+x`

Instead of y, if we put 25000+x the equation will be as following:

`x*0,04+75000*0,05+(25000+x)*0,06=5250`

From the equation it is found that:

`x=5000`

Short-Term investment is 5000$

`x+25000=y`

Long-Term investment is 30000$

Rest of the money is Intermediate-Term investment 65000$