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?
- rtfmLv 71 decade agoFavorite 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.
- Anonymous1 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?