Suppose you had $1000 to invest on September 30, 2016 and you had the option of choosing either AAPL or RRD or a combination of the two (example: 5% in AAPL and 95% in RRD; or 80% in AAPL and 20% in RRD; i. e. in general x% in AAPL and y% in RRD where x%+y%=100%). How would you invest the $1000? Why?

Question

Business

Lilliana

25 September, 11:49

Suppose you had $1000 to invest on September 30, 2016 and you had the option of choosing either AAPL or RRD or a combination of the two (example: 5% in AAPL and 95% in RRD; or 80% in AAPL and 20% in RRD; i. e. in general x% in AAPL and y% in RRD where x%+y%=100%). How would you invest the $1000? Why?

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Answers (1)

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Maurice Erickson · Answer 1

I would invest the whole $1000 in AAPL, because y% gives zero return while x% gives $250 in return.

Explanation:

First and foremost we need to formulate equations based on the return percentages given:

when x%=5%

y=95%

0.05x+0.95y=$1000 eqn 1

when x%=80%

y=20%

0.8X+0.2y=$1000 eqn 2

multiply eqn 1 by 16 gives

0.8x+15.2y=$1000

0.8x+0.2y=$1000

deduct both equations

15y=0

y=0/15

y=0

substitute the value of y in eqn 2

0.8x+0.2y=$1000

0.8x+0.2 (0) = 1000

0.8x=1000

x=1000/8

x=$1250 (interest plus principal)

interest = $250

principal=$1000