Trying to understand the wording of this finance question...?

Shaun invests $4000.00 at 4% interest per year. How much additional money must he invest at 5.5% interest per year to ensure that the interest he receives each year is 4.5% of the total amount invested?

I think they have failed to construct a valid question here... tsk tsk...

would somebody PLEASE prove me wrong?

2 Answers

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  • rtfm
    Lv 7
    1 decade ago
    Favorite Answer

    Sounds like a relatively simple question to me.

    He's deposited $4000 at 4 percent.

    He's also going to deposit X at 5.5 percent.

    The total interest earned at the end of the year is going to be 4.5 percent of the total amount he invested.

    So 4 percent of 4000 plus 5.5 percent of X will be 4.5 percent of (4000 plus X)

    Turn that into an equation and solve for X.

  • Anonymous
    1 decade ago

    Nope. You are missing the point of the question, which is about the math of investing not the logic of investing.

    A question asking you about the logic (management) of investing would go this way:

    Shaun wishes to earn an average/net return of 4.5% on his investment, but he is afraid to risk investing all of his money in Berkshire Bonds (current yield = 5.5%). How much of his money will be invested in Berkshire bonds if he decides to invest $4000 in Treasury bonds (current yield = 4%) to lower the risk.

    Clear as mud?

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