solving investment problems. investment problems investment problems have three parts: 1.the...
TRANSCRIPT
Solving Investment Problems
Investment Problems
Investment problems have three parts:
1. The principal – the amount being invested
2. The rate – the % that the money will earn
3. The income – the earnings from the investment
The problem
Mary has just retired and has 60,000.00 available to invest. She is considering bonds at an interest rate of 13% and CD’s at an interest rate of 3%. If she wants to earn income of exactly 6,000.00 per year from these investments, how much money should she invest in each?
Tic – tac - toe
Many problems are easiest to solve using boxes.
Principal Rate Income
Bonds
CD
Total
Fill the boxes with the information from the story.
bonds at an interest rate of 13% (write the % as a decimal)
Principal Rate Income
Bonds .13
CD
Total
Fill the boxes with the information from the story.
CD at an interest rate of 3% (write the % as a decimal)
Principal Rate Income
Bonds
CD .03
Total
Fill the boxes with the information from the story.
60,000.00 available to invest
Principal Rate Income
Bonds
CD
Total 60,000
Fill the boxes with the information from the story.
income of exactly 6,000.00
Principal Rate Income
Bonds
CD
Total 6,000
Tic – tac - toe
This is what we already know:
Principal Rate Income
Bonds .13
CD .03
Total 60,000 6,000
Tic – tac - toe
You don’t know how much was invested in bonds, so call that x.
Principal Rate Income
Bonds x .13
CD .03
Total 60,000 6,000
Be smarter than the average bear!
You don’t know how much was invested in either bonds or CD’s. You know the total is 60,000 and you have called the amount invested in bonds x.
If you ever manage to figure out what x is, how will you find the amount invested in CD’s?
You’ll take x away from the total of 60,000.
Let’s do it!
Tic – tac - toe
Show the amount in CD’s as the total minus x
Principal Rate Income
Bonds x .13
CD 60,000 - x .03
Total 60,000 6,000
Tic – tac - toe
Multiply across: principal X rate = income
Principal Rate Income
Bonds x .13 .13x
CD 60,000 - x .03 .03 ( 60,000 – x )
Total 60,000 6,000
Add down
You always add down because:
Income from bonds + Income from CD’s_____________________
Total Income
Add down the last column
.13x + .03(60,000 - x) = 6,000
Principal Rate Income
Bonds x .13 .13x
CD 60,000 - x .03 .03(60,000 – x)
Total 60,000 6,000
Solve the problem!
.13x + .03(60,000 - x) = 6,000.13x + 1800 - .03x = 6000
.10x +1800 = 6000.10x = 4200x = 42,000
and 60,000 – x = 18,000
Be sure you answer the question!
how much money should she invest in each? x = 42,000
and60,000 – x = 18,000
She should invest 42,000 in bonds and 18,000 in CDs.
Tic-tac-toe Problems
• Make your boxes• Fill in the information you
know• Use your head• Multiply across• Add down• Solve the problem• Make sure you answer the
question that is being asked!