Question

One safe investment pays 8% per year, and a more risky investment pays 12% per year.

a. How much must be invested in each account if an investor of $109,000 would like a return of $9.920
b. Why might the investor use two accounts rather than put all the money in the 12% investment?

Answer 1

Principal = 109,000

Return - 9,920

Return = (principal x rate x time)/100

X = the amount invested at 12%

Then 102000- x = the amount invested at 8%

9920 = (x*12)/100 + (109000-x*8)100

x = 30,000

a) 30,000 is invested at 12%

79,000 is invested at 8%

b) The 12% investment is riskier so if all the money was in that account the investor could lose all his money.