Question

an investor has $12,000 to invest into two different funds. fund a, which is a high risk fund, yields an average return of 14%. fund b, which is a low risk fund, yields an average return of 6%. to reduce the risk, the investor wants the amount in fund b to be at least twice the amount in fund a. how much should be invested in each fund to maximize the return?

Answer 1

Given:
amount to invest: 12,000
fund a: high risk ; yields 14%
fund b: low risk ; yields 6%

fund a = 1/2 x
fund b = x

1/2x + x = 12,000
1.5x = 12,000
x = 12,000 / 1.5
x = 8,000

fund a = 1/2 x = 1/2 * 8,000 = 4,000
fund b = x = 8,000

fund a = 4,000 x 14% = 560
fund b = 8,000 x 6% = 480

560 + 480 = 1,040 return of the 12,000 investment.