Question

Scott just retired, and has $710,000 to invest. A very safe Certificate of Deposit (CD) account pays 1.5%, while a riskier bond fund pays 8.5% in interest. Scott figures he needs $46,000 a year in interest to live on. How much should he invest in each account to make enough interest while minimizing his risk? at 1.5% $ at 8.5% Round answers to the nearest dollar.

Answer 1

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Amount to inuest $7,10,000 Interest paid by CD = Frterest paid by riskier bond = 8.5o. Sol PAGE NO. : 1.5% DATE Intiust amput Let the ampunt ainvested in amaint inusted in iskier bonol be 710000-2 Interest caned needed pir ylas= $46000 be R xand C.D investement by in CD= xxrxt= 100 xx1:5X1 I00 D.D152 Inlinest carnid by inestimnt is ricken bond= 1,=(710000-x)X =(710000-x)xS5x. 100 100 Ig=6035000 -8.5z 60350-0.085x 100 Total ntenest carned =$46000 46000 0.015a +60350-0.08x=46000 -0.070 x = 46000-60350 +0.070 x =+14350 205 1=74350 X1000 x=3205000 Remaining amount = 710000-20S 000 3505000 * Amourt invested in c D = $2.05,000 Amount inested in riskiy bond $505000 $12.05.0001at li5%. $1505.000. at 8.57.