Consider a Person Who Invests in AAA-Rated Bonds,A-Rated Bonds,and B-Rated

question 16

Multiple Choice

Consider a person who invests in AAA-rated bonds,A-rated bonds,and B-rated bonds.The average yields are 6.5% on AAA bonds,7% on A bonds,and 9% on B bonds.The person invests twice as much in B bonds as in A bonds.Let x,y and z represent the amounts invested in AAA,A,and B bonds,respectively. Total Investment
Annual Return
$32,000
2465 $$\left\{ \begin{array} { c l } x + y + z & = 32,000 \text { (total investment) } \\0.065 x + 0.07 y + 0.09 z & = 2465 \text { (annual retur) } \\2 y - z & = 0\end{array} \right.$$ Use the inverse of the coefficient matrix of this system to find the amount invested in each type of bond.
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• A)$11,000 in AAA-rated bonds $7,000 in A-rated bonds
• $14,000 in B-rated bonds
• B)$11,000 in AAA-rated bonds $14,000 in A-rated bonds
• $7,000 in B-rated bonds
• C)$14,000 in AAA-rated bonds $11,000 in A-rated bonds
• $7,000 in B-rated bonds
• D)$14,000 in AAA-rated bonds $7,000 in A-rated bonds
• $11,000 in B-rated bonds
• E)$7,000 in AAA-rated bonds $11,000 in A-rated bonds
• $14,000 in B-rated bonds

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Definitions:

MC (Marginal Cost)

The additional expense associated with the production of one more unit of a product or service.

Take a Loss

To realize a financial loss on an investment or transaction, often as a result of selling assets for less than their purchase price.

Short Run

A period in economics during which at least one input (e.g., factory size) is fixed and cannot be changed.

Long Run

A period of time in economics during which all factors of production and outputs are variable, allowing for full adjustment to changes.