Consumer Math (Savings)

Question

You saved $30,000.00 and want to diversify your monies. You invest 40% in a Treasury bond for 3 years at 5.35% APR compounded annually. You place 10% in a CD at 4.75% APR for 3 years compounded annually. 30% you invest in a stock plan and the remainder is in a savings account at 3.90% APR compounded annually. The stock plan increases 9% the first year, decreases in value by 5% the second year, and increases by 7% the third year.

1. What are the balances for each type of investment at the end of the third year?

2. What is your total gain from all of the investments combined?

3. If you had invested 40% in stock and 30% in Treasury bonds, would you have more or less of a gain after the three years?

Be sure to include in your response:

· Detailed calculations for each type of investment.

· Answers to the original questions.

Answer 1

1. Treasury Bond 40% of $30,000 = $12,000 $12,000(1.0535)³ = $14,030.88

CD 10% of $30,000 = $3,000 $3,000(1.0475)³ = $3,448.13

Stock Plan 30% of $30,000 = $9,000

Yr 1: 9000(1.09) = $9,810 Yr 2: $9,810(0.95) = $9,319.50 Yr 3: $9,319.50(1.07) = $9,971.87

Savings Account: 20% of $30,000 = $6,000 $6,000(1.039)³ = $6,729.73

2. Gain = $34,180.61 - $30,000 = $4,180.61

3. Treasury Bond 30% of $30,000 = $9,000 $9,000(1.0535)³ = $10,523.16

Stock Plan 40% of $30,000 = $12,000

Yr 1: 12000(1.09) = $13,080 Yr 2: $13,080(0.95) = $12,426 Yr 3: $12,426(1.07) = $13,295.82

CD = $3,448.13

savings = $6,729.73

Gain = $33,996.84 - $30,000 = $3,996.84

If you invested 30% into Treasury Bonds and 40% into Stocks, then your gain would be less by $183.77.