forget the "at least" part for now. If we invest exactly 20% in bonds, that gives
.03(.20) + .07(.80) = .006+.056 = .062 = 6.2%
So, that will do the trick. In order to get exactly 5.5%, he'd have to do
.03x + .07(1-x) = .055
x = .375
So, as long as he invests less than 37.5% in bonds, his return will be at least 5.5%
William recently inherited a large sum of money; he wants to use a portion of this money to set up a trust fund for his
two children. The trust fund has two investment options: (1) a bond fund and (2) a stock fund. The projected returns over the life
of the investments are 3% for the bond fund and 7% for the stock fund. Whatever portion of the inheritance he finally decides to
commit to the trust fund, he wants to invest at least 20% of that amount in the bond fund. In addition, he wants to select a mix that
will enable him to obtain a total return of at least 5.5%.
1 answer
1 answer