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Julián just retired, and has $800,000 to invest. A very safe Certificate of Deposit (CD) account pays 2.5%, while a riskier bond fund pays 5% in interest. Julián figures he needs $36,000 a year in interest to live on. How much should he invest in each account to make enough interest while minimizing his risk?

Sagot :

An equation is formed of two equal expressions. Julian should invest $160,000 in CD and $640,000 in Bond.

What is an equation?

An equation is formed when two equal expressions are equated together with the help of an equal sign '='.

Let the amount invested in CD be represented by x, while the amount invested in bond be represented by y. The total amount that Julian had is,

x + y = 800,000

x = 800,000 - y

The interest that Julian needs in a year is $36,000. Therefore, the total interest should be,

0.025x + 0.05y = 36000

0.025(800,000 - y) + 0.05y = 36000

20,000 - 0.025y + 0.05y =36,000

0.025y = 16,000

y = $640,000

Substitute the value of y

x + y = 800,000

x = $160,000

Hence, Julian should invest $160,000 in CD and $640,000 in Bond.

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