Project A $ Project B $ A financier plans to invest up to $650,000 in two projec
ID: 2640993 • Letter: P
Question
Project A $ Project B $ A financier plans to invest up to $650,000 in two projects. Project A yields a return of 10% on the investment, whereas Project B yields a return of 15% on the investment. Because the investment in Project B is riskier than the investment in Project A, the financier has decided that the investment in Project B should not exceed 40% of the total investment. How much should she invest in each project to maximize the return on her investment? Project A $ What is the maximum return? $ Project B $Explanation / Answer
The total amount that can be invested = $650,000
Maximum amount that can be invested in project B = 40%
Hence, the maximum amount that can be invested in project A = 60%
Return on investment A = 10%
Return on investment B = 15%
As investment B provides a better return on investment, maximum amount should be invested in investment B first and the rest over capital should be invested in project A.
1) Amount to be invested in project A = 0.60 * $650,000 = $390,000
2) Amount to be invested in project B = 0.40 * $650,000 = $260,000
3) Maximum return that can be achieved: [0.60 * $650,000 * 0.10] + [0.40 * $650,000 * 0.15] = $39,000 + $39,000 = $78,000 would be the maximum return.
I hope my solution solves your query.
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