An Investor Has $150,000 to Invest in Two Types of Investments

question 52

Multiple Choice

An investor has $150,000 to invest in two types of investments. Type A pays 5% annually and type B pays 6% annually. To have a well-balanced portfolio, the investor imposes the following conditions. At least one-third of the total portfolio is to be allocated to type A investments and at least one-third of the portfolio is to be allocated to type B investments. What is the optimal amount that should be invested in each investment?

• A) $60,000 in type A (5%), $90,000 in type B (6%)
• B) $0 in type A (5%), $150,000 in type B (6%)
• C) $150,000 in type A (5%), $0 in type B (6%)
• D) $100,000 in type A (5%), $50,000 in type B (6%)
• E) $50,000 in type A (5%), $100,000 in type B (6%)

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Definitions:

Ordinary Income

Income earned from providing services or the sale of goods, typically subject to standard tax rates, as opposed to income classified as capital gains.

Equipment Distribution

The process of supplying equipment to various departments or locations within an organization or among individuals.

Cash Distributions

Payments made in cash by a corporation to its shareholders, typically from earnings or profits.

Tax-exempt Income

Income that is not subject to federal income tax, such as certain interest income from municipal bonds.