Question

You have $90,000 for investment. You will invest S dollars in stocks and B dollars in bonds. You expect a 10% return on stocks and a 2% return on bonds. You want a total return of 5% on your investment.(a)The dollar amount of the total return is0.05 ✕ 90,000 = $4500.What is the dollar amount of return for stocks, and what is the dollar amount for bonds? (Suggestion: Your answers will involve the variables S and B.)

Answer 1

The dollar amount for the return on stocks is $3375 and the dollar amount for the return on bonds is $1125.

Two equations can be derived from the question:

s + b = $90,000 equation 1

0.1s + 0.02b = $4500 equation two

$4500 = 0.05  x $90,000

The above equation is a simultaneous equation and it would be solved using the elimination method.

The following steps would be take to determine the value of b

Multiply equation 1 by 0.1

0.1s + 0.1b = 9000 equation 3

Subtract equation 2 from 3

0.08b = $4500

b = $56,250

The following step would be taken to determine the value of s

Substitute for b in equation 1

s + $56,250 = $90,000

$90,000 - $56,250 = s

s = $33,750

Dollar amount for the return on stocks = $33,750 x 0.1 = $3375

Dollar amount for the return on bonds = $56,250 x 0,02 = $1125

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