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A retired couple needs $12,000 per year in income to supplement their Social Security. They have $150,000 to invest to obtain this income. They have decided on two investment options: AA bonds yielding 10% per annum and a bank CD yielding 5%.

(a) How much should be invested in each to realize exactly $12,000 in interest income?
(b) If, after two years, the couple requires $14,000 per year in income, how should they reallocate their investment to achieve the new amount?

can you show me how you got your answer please?

(a) Let x be the amount invested in AA binds and y be the amount invested in CDs. You have two equations in two unknowns. They are
x + y = 150,000 (total principal available)
0.1 x + 0.05 y = 12,000 (desired income)
Now do the algebra.
x + 0.5 y = 120,000 (second equation x2)
0.5 y = 30,000. (subracting last equation from first)
y = 60,000. (doubling last equation)
x = 60,000.

(b) Use a similar procedure here, but the equations are:
x + y = 150,000 (total principal available)
0.1 x + 0.05 y = 14,000 (desired income)

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4 answers

  1. Correct answers are:
    A.) x= 90,000 & y= 60,000
    B.) x= 130,000 & y= 20,000

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  2. to think this was 14 years ago...

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  3. And no one even answered until 8 year later!

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  4. sorry if I'm 14 years late but the answer is
    A.) x= 90,000 & y= 60,000
    B.) x= 130,000 & y= 20,000
    and this was also made the year I was born

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