Answer:
(T, C, J) = (in dollars)
(10000, 10000, 0),
(15000, 4915.97, 84.03),
(18181.82, 1680.67, 137.51)
Explanation:
There are a number of ways to approach this question. We have chosen an approach that determines the investments required to achieve interest rate targets.
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For an overall interest rate of I, the proportion that must be invested at rate I1 < I < I2 is ...
proportion at I1 = (I2 -I)/(I2 -I1)
Similarly, the proportion that must be invested at I2 is what's left over. It can be computed similarly:
proportion at I2 = (I -I1)/(I2 -I1)
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We want an overall interest rate of $2000/$20000 = 10%.
Given available interest rates of 9%, 11%, and 130%, we need to have investments at a rate lower than 10% and at a rate higher than 10%.
If we use only the options for 9% and 11% (no junk bonds), then we can compute ...
proportion at 9% = (11 -10)/(11 -9) = 1/2
proportion at 11% = (10 -9)/(11 -9) = 1/2
1st Option:
$10,000 in treasury bills; $10,000 in corporate bonds
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Suppose we want to achieve a 13% return on our investments at 11% and 130%. Then the proportion invested at 9% will use this value for I2:
proportion at 9% = (13 -10)/(13 -9) = 3/4
Of the remaining 1/4 of the money, we can achieve a 13% return by mixing the investments like this:
proportion at 11% = (130 -13)/(130 -11) = 117/119
proportion at 130% = (13 -11)/(130 -11) = 2/119
2nd option:
$20,000 × 3/4 = $15,000 in treasury bills
$5000 × 117/119 = $4,915.97 in corporate bonds
The remaining amount, $84.03 in junk bonds
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Let's suppose we want a 20% return on our investment in junk bonds and corporate bonds. Then the proportion of the money invested at 9% will be ...
proportion at 9% = (20 -10)/(20 -9) = 10/11
And the proportion at 11% will be ...
proportion at 11% = (130 -20)/(130 -11) = 110/119 . . . (of the remaining 1/11 of the funds)
3rd option:
$20,000 × 10/11 = $18,181.82 in treasury bills
$1,818.18 × 110/119 = $1,680.67 in corporate bonds
The remaining amount, $137.51 in junk bonds
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Additional comment
The most that could be invested in Junk Bonds is $165.29. If the remainder is invested in Treasury Bills, then the overall return will be $2000. (You could consider this to be a 4th option.)