Solving Investment Problems Investment Problems Investment problems have

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 Bonds CD Total Rate Income

Fill the boxes with the information from the story. bonds at an interest rate of 13% (write the % as a decimal) Principal Bonds CD Total Rate. 13 Income

Fill the boxes with the information from the story. CD at an interest rate of 3% (write the % as a decimal) Principal Rate Bonds CD Total . 03 Income

Fill the boxes with the information from the story. 60, 000. 00 available to invest Principal Bonds CD Total 60, 000 Rate Income

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 Bonds . 13 CD . 03 Total 60, 000 Income 6, 000

Tic – tac - toe You don’t know how much was invested in bonds, so call that x. Principal Bonds x CD Total Rate Income . 13. 03 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 Bonds Rate x . 13 CD 60, 000 - x . 03 Total 60, 000 Income 6, 000

Tic – tac - toe Multiply across: principal X rate = income Principal Rate Income x . 13 x CD 60, 000 - x . 03 ( 60, 000 – x ) Total 60, 000 Bonds 6, 000

Add down You always add down because: Income from bonds + Income from CD’s ___________ Total Income

Add down the last column Principal Rate Income x . 13 x CD 60, 000 - x . 03(60, 000 – x) Total 60, 000 Bonds . 13 x +. 03(60, 000 - x) = 6, 000

Solve the problem!. 13 x +. 03(60, 000 - x) = 6, 000. 13 x + 1800 -. 03 x = 6000. 10 x +1800 = 6000. 10 x = 4200 x = 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 and 60, 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!