Question

Chris received $50,000 from his grandparents as a graduation gift. So, he has decided to invest the money

to pay his living cost at a college, which is $3,000 a year. There are two options: a bond that pays 12% and
a CD that pays 5%. How much should he invest in the bond? [Please round your answer to 2 decimal places.]

Answer 1

Answer: $7142.86

Explanation:

Let the amount to be invested in the bond be represented by y.

Based on this, the amount to be invested in the CD will be: = 50000 - y.

From the information given, yearly interest on bond is 12%, this will be:

= 12% × y = 0.12 × y = 0.12y

Also, interest on CD will be:

= 5% × (50000 - y)

= 0.05(50000 - y)

Then, the equation to get the amount to be invested in bond will be:

0.12y + 0.05(50000 - y) = 3000

0.12y + 2500 - 0.05y = 3000

0.12y - 0.05y = 3000 - 2500

0.07y = 500

y = 500/0.07

y = 7142.8571

y = 7142.86

The amount to be invested in bond will be $7142.86