Question

One safe investment pays 10% per year, and a more risky investment pays 14% per year.

a. How much must be invested in each account if an investor of $102,000 would like a return of $11,320 per year?
b. Why might the investor use two accounts rather than put all the money in the 14% investment?
a. $
is invested in the 10% account.

Answer 1

Explanation:

x + y = 102000

y = 102000 - x

x(0.10) + y(0.14) = 11320

x(0.10) + (102000 - x)(0.14) = 11320

0.10x + 14280 - 0.14x = 11320

0.04x = 2960

x = $74000 in the 10% account

102000 - 74000 = $28000 in the 14% account

b) to limit the risk to the overall investment plan