2) After 2 years, Betsy finds she now will require $7,000 per year. The remaining info is the same. How should the money be reinvested?
Same info: 1) Betsy requires $6000 per year in extra income. She has $50,000 to invest and can invest in bonds paying 15% per year or in CD paying 7% per year.
Should I use the same equation that I used for 1) and just change the 6000 interest to 7000? and re find the money that should be invested in CD and bonds?
The question is poorly worded. But that is the way I got the answer.
Yes, you can use the same equation as before and modify it to meet the new requirement of $7,000 per year in extra income. Here's how you can calculate the amount of money that should be invested in CDs and bonds:
Let's assume x represents the amount invested in CDs and ($50,000 - x) represents the amount invested in bonds.
The equation will be:
0.07x + 0.15($50,000 - x) = $7,000
Now, solve for x:
0.07x + 0.15($50,000 - x) = $7,000
0.07x + $7,500 - 0.15x = $7,000
-0.08x = $7,000 - $7,500
-0.08x = -$500
x = -$500 / -0.08
x ≈ $6,250
So, approximately $6,250 should be invested in CDs and the remaining amount ($50,000 - $6,250) = $43,750 should be invested in bonds.
Yes, you can use a similar equation to determine the amount of money that should be invested in CDs and bonds, taking into account the increased annual income requirement of $7,000.
Let's break down the problem and solve it step by step:
1) Determine the amount of money that should be invested in CDs:
Let's assume x represents the amount of money to be invested in CDs.
CDs pay 7% interest per year, so the annual income from CDs would be 0.07x.
Since Betsy requires $7,000 per year as income, we can set up the equation:
0.07x = $7,000
Solving for x, we find:
x = $7,000 / 0.07
x ≈ $100,000
So, Betsy should invest approximately $100,000 in CDs.
2) Determine the remaining amount of money that should be invested in bonds:
The remaining amount available for investment after investing in CDs would be the total amount of money initially available ($50,000) minus the amount invested in CDs ($100,000):
Remaining amount = $50,000 - $100,000 = -$50,000
Since the remaining amount is negative, it means that Betsy doesn't have enough money to invest in bonds. Therefore, she should only invest in CDs.
In this scenario, Betsy should invest the entire $50,000 in CDs to meet her increased annual income requirement of $7,000.