An investor has $80,000 to invest in a CD and a mutual fund. The CD yields 8% an

Question

An investor has $80,000 to invest in a CD and a mutual fund. The CD yields 8% and the mutual fund yields 7%. The mutual fund requires a minimum investment of $9,000, and the investor requires that at least twice as much should be invested in CDs as in the mutual fund. How much should be invested in CDs and how much in the mutual fund to maximize the return? What is the maximum return? To maximize income, the investor should place S·in CDs and $. In the mutual fund. Round to the nearest dollar as needed.)

Explanation / Answer

1) As the CD yields higher interest rate, maximum has to be invested in it, but subject to the ratio of investment in CD/MF being 2:1. Hence, Investment in CD = 80000*2/3 = $         53,333 Investment in MF = 80000*1/3 = $         26,667 2) Maximum return = 8%*2/3+7%*1/3 = 7.67%

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