A retired couple have $50,000 to invest. As their financial consultant, you recommend they invest some...

A retired couple have $50,000 to invest. As their financial consultant, you recommend they invest some money in Treasury Bills that yield 7%, some money in corporate bonds that yield 9%, and some money in junk bonds that yield 11%. If they want $3600 per year in income and they invest $1000 in junk bonds, find the amount they should place in each of other two investments.

They should invest $_____?____ in Treasury Bills and $_____?______ in corporate bonds and $1000 in junk bonds to attain $3600 annual income.

Expert Solution

Assuming that the retired couple needs the annual income to perpetuity as no years are specified.

Required return needed = Annual Income/ Investment = 3600/50,000 = 7.2%

Usig Goal seek function in excel,

Investment in Treasury Bills = $ 46,000, Investment in Corporate Bonds = $ 3,000 and Investment in Junk Bond = $ 1000

Formulae

jeff jeffy answered 2 years ago

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