Investments Johnny is a shrewd 8-year old.

Question

3. Investments Johnny is a shrewd 8-year old. For Christmas, his grandparents gave him $10,000. Johnny decides to invest some of the money in a savings account that pays 2% per annum and the rest in a stock fund paying 10% per annum. Johnny wants his investments to yield 7% per annum. How much should Johnny put into each account?

Answer 1

Let x = investment at 2% and y = investment at 10%. Set up 2 equations with 2 unknowns: x + y = 10,000 and

0.02x + 0.10 y = 0.07(10,000) = 0.02x + 0.10y = 700. Then solve #1 for x: x = 10,000 - y, and substitute this value in #2: 0.02(10,000 - y) + 0.10 y = 700; 200 - 0.02y + 0.10 y = 700; 0.08y = 500; y = 6,250. Then substitute this value in first equation: x + 6,250 = 10,000; x = 3750. So, invest $3750 at 2% (interest = $75) and $6,250 at 10% (interest = $625), to get total interest of $700.