Question

Vern sold his 1964 ford mustang for $55,000 and wants to invest the money to earn him 5.8% interest per year. he will put some of the money into fund a that earns 3% per year and the rest in fund b that earns 10% per year. how much should he invest into each fund if he wants to earn 5.8% interest per year on the total amount?

Answer 1

Here you go,

$33,000 in Fund A, $22,000 in Fund B.

Answer 2

The correct answer is, $33000 in Fund A and $22000 in Fund B.

Explanation:

Fund A earns 3% per year

Fund B earns 10% per year

Required Rate of return is 5.8%

(Wa x 3%) + [ (1-Wa) ( 10%) ] = 5.8%         --- Equation 1

Wa = Weight of funds invested in Fund A

1 - Wa = Weight of funds invested in Fund B

Solving the equation 1 for Wa gives us, Wa = 0.6 and Wb= 0.4

$55000 x 0.6 = $33000

$55000 x 0.4 = $22000