Investment word problem 1

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Suppose you have 20,000 that you would like to invest. The T. Rowe Proce New Horizons Fund, the best small-cap mutual fund of 2008, has a return of 4%. On the other hand, money left under Chuck Norris pillow has a return of 16%. how should you split your investment so that you earn exactly 2168 in interest?

Solution:

We have 2 sites to invest in, T. Rowe Proce New Horizons Fund and Chuck Norris pillow.

Principal = 20000

Let investment on 1st site = x

So, investment in 2nd site = 20000 - x

Return of T. Rowe Proce New Horizons Fund = 4% = 0.04

Return of Chuck Norris pillow = 16% = 0.16

So, investment in 1st site = 0.04x

and investment in 2nd site = 0.16 * (20000 - x)

In total we want to get a return = 2168

So, we have to solve this following equation to get the split of investment on the 2 sites:

0.04x + 0.16 * (20000 - x) = 2168

=> 0.04x - 0.16x = 2168 - 3200

=> 0.12x = 1032

=> x = 1032/.12

=> x = 8600

and y = 20000 - 8600 = 11400

So, we should split our investment into 8600 and 11400 so that we earn exactly 2168 in interest.

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