Question

Betsy, a recent retiree, requires $6,000 per year in extra income. She has $50,000 to invest and can invest in B-rated bonds paying 13% per year or in a certificate of deposit (CD) paying 3% per year. How much money should be invested in each to realize exactly $6,000 in interest per year?

Answer 1

$45,000 at 13% = B-rated bond

$5,000 at 3% = CD

Explanation:

Let us assume the x amount at 13% be 0.13x

And, y amount at 3% be 0.03x

Total interest = $6,000

The equation is

0.13x + 0.03x = $6,000 ................(1)

Now the total amount is $50,000

So

x + y = $50,000

y = $50,000 - x ................(2)

Now put the y value in the equation 1

So,

0.13x + 0.03 ($50,000 - x) = $6,000

0.13x + $1,500 - 0.03x = $6,000

0.10x = $6,000 - $1,500

0.10x = $4,500

x = $4,500 ÷ 0.10

= $45,000 at 13%

now y value would be

= $50,000 - $45,000

= $5,000 at 3%