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An investment firm recommends that a client invest in bonds rated AAA, A, and B. The average yield on AAA bonds is \( 4 \% \), on A bonds \( 6 \% \), and on B bonds \( 11 \% \). The client wants to invest twice as much in AAA bonds as in B bonds. How much should be invested in each type of bond if the total investment is \( \$ 25,000 \), and the investor wants an annual return of \( \$ 1,560 \) on the three investments? The client should invest \( \$ \square \) in AAA bonds, \( \$ \square \) in A bonds, and \( \$ \square \) in B bonds.

Ask by Mejia Brooks. in the United States
Feb 22,2025

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Answer

The client should invest \$12,000 in AAA bonds, \$7,000 in A bonds, and \$6,000 in B bonds.

Solution

Let x be the amount invested in AAA bonds, y in A bonds, and z in B bonds. We have three conditions: 1. The total investment is:   x + y + z = 25,000 2. The annual yield requirement is:   0.04x + 0.06y + 0.11z = 1,560 3. The client invests twice as much in AAA bonds as in B bonds:   x = 2z Step 1: Substitute x = 2z into the total investment equation:   2z + y + z = 25,000   => y + 3z = 25,000   => y = 25,000 − 3z Step 2: Substitute x = 2z and y = 25,000 − 3z into the yield equation:   0.04(2z) + 0.06(25,000 − 3z) + 0.11z = 1,560   => 0.08z + 1,500 − 0.18z + 0.11z = 1,560   => (0.08 − 0.18 + 0.11)z + 1,500 = 1,560   => 0.01z + 1,500 = 1,560 Step 3: Solve for z:   0.01z = 1,560 − 1,500   => 0.01z = 60   => z = 60 / 0.01 = 6,000 Step 4: Now determine x and y:   x = 2z = 2 × 6,000 = 12,000   y = 25,000 − 3z = 25,000 − 3×6,000 = 25,000 − 18,000 = 7,000 Thus, the investments should be:   AAA bonds: $12,000   A bonds: $7,000   B bonds: $6,000

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Let's denote the investment amounts in AAA, A, and B bonds as \( x \), \( y \), and \( z \) respectively. We know from the problem that the total investment is: \[ x + y + z = 25,000 \] Additionally, the client wants to invest twice as much in AAA bonds as in B bonds: \[ x = 2z \] The annual return from the investments should equal $1,560. The returns can be expressed as: \[ 0.04x + 0.06y + 0.11z = 1,560 \] Now, we substitute \( x = 2z \) into the equations. The first equation becomes: \[ 2z + y + z = 25,000 \] \[ 3z + y = 25,000 \] \[ y = 25,000 - 3z \] Next, we substitute \( x = 2z \) and \( y = 25,000 - 3z \) into the return equation: \[ 0.04(2z) + 0.06(25,000 - 3z) + 0.11z = 1,560 \] This simplifies to: \[ 0.08z + 1,500 - 0.18z + 0.11z = 1,560 \] \[ 0.08z - 0.18z + 0.11z + 1,500 = 1,560 \] \[ 0.01z + 1,500 = 1,560 \] \[ 0.01z = 60 \] \[ z = 6,000 \] Now, substituting back to find \( x \) and \( y \): \[ x = 2z = 2(6,000) = 12,000 \] \[ y = 25,000 - 3z = 25,000 - 18,000 = 7,000 \] Therefore, the client should invest: - \( \$ 12,000 \) in AAA bonds - \( \$ 7,000 \) in A bonds - \( \$ 6,000 \) in B bonds. The final results are: The client should invest \( \$ 12,000 \) in AAA bonds, \( \$ 7,000 \) in A bonds, and \( \$ 6,000 \) in B bonds.

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