interest rate

Question

Theresa earns a full athletic scholarship for college so her parents have given her the $20,000 they had saved to pay for her college tuition. She decides to invest that money with an overall goal of earning 11% interest. She wants to put some of the money in a low risk investment that has been earning 8% a year and the rest of the money in a medium risk investment that typically earns 12% a year. How much money should she put in each investment to reach her goal?

Answer 1

Maggie, we need a system of equations.

 

a + b = 20,000

.08a + .12b = .11(20,000)

 

Now, we "solve" the first equation for either a or b. Let's do a...

 

a = 20,000 - b

 

Now, substitute this new "value" of a for a in the 2nd equation...

 

.08(20,000 - b) + .12b = 2200

1600 - .08b + .12b = 2200

.04b = 600

b = 15,000

 

a = 20,000 - 15,000 = 5,000

 

Hope this helps!