Question

QUESTION 4 (10 MARKS)

A retired couple requires an annual return of $2,000 from investment of $20,000. There are 3
options available:
(A) Treasury Bills yielding 9%;
(B) Corporate bonds 11%;
(C) Junk Bonds, 13%
How much should be invested in each to achieve their goal? Give 3 sets of options that can
achieve their goal.[10 Marks]​

Answer 1

A. $22,223

B. $20,000

C. $20,000

Step-by-step explanation:

The annual return of the retired couple's investment is called the yield in percentage.

A. If they go for Treasury bills which has a yield of 9%, to attain a return of at least $2,000 their investment must exceed $20,000. 9% of 22,223 = $2,000.07

B. . If they go for Corporate bonds option which has a yield of 11%, to attain a return of at least $2,000; 11% of 20,000 = $2,200

C. . If they go for Junk bonds option which has a yield of 13%, to attain annual return of at least $2,000; 13% of $20,000= $2,600