Question

Mike has $235,000 he wishes to invest in two rental properties. One yields 10% and the other yields 12%. For safety he wants to split his investment between the two properties instead of investing all of his money in the higher yielding rental property. If his goal is to achieve a total income earned of $25,000 a year from these two properties, how much money should he invest in each property. You must show your work illustrating how you calculated your answer in order to get credit for this problem.

Answer 1

Answer:

Mike spends $160,000 on A and $75,000 on B

Explanation:

Lets call the rental properties as A and B.

A yields 10% anb B yields 12%.

Total investment=$235,000

Expected income=$25,000

Let the amount he invests in A be x.

Then amount spent in B=$(235,000-x)

Income from A=x × 0.1                             ----------------(1)

Income from B=(235,000-x)× 0.12          ---------------(2)

Sum of incomes =$25,000

Taking sum of both equations,

x × 0.1 +(235,000-x)× 0.12 =25,000

235,000×0.12 -0.02×x =25,000

28,200 -0.02×x =25,000

0.02×x =3,200

x=$\frac{3,200}{0.02}$

x =$160,000