Question

You have ​$750,000 in an IRA​ (Individual Retirement​ Account) at the time you retire. You have the option of investing this money in two​ funds: Fund A pays 1.6​% annually and Fund B pays 6.6​% annually. How should you divide your money between Fund A and Fund B to produce an annual interest income of ​$41,500

Answer 1

Answer:

you need to invest $160,000 in fund A and $590,000 in fund B

Explanation:

you have to solve the following equations:

0.016A + 0.066B = $41,500

A + B = $750,000

where:

A = amount invested in fund A

B = amount invested in fund B

A = $750,000 - B

0.016 ($750,000 - B) + 0.066B = $41,500

$12,000 - 0.016B + 0.066B = $41,500

0.05B = $29,500

B = $29,500 / 0.05 = $590,000

A = $750,000 - $590,000 = $160,000