Question

You received a $5,000 bonus and want to invest it. Your financial planner tells you to invest 40% in stock that pays 7% annual dividends and the rest in a money market fund that earns 4.5% annual Interest. Your banker suggests you invest the entire amount in a certificate of deposit that earns 5% annual rate compounded every 6 months. Which advice will result in the highest yleld? A) Financial Planner's Advice B) Banker's Advice C) Both plans yield the same amount. D) None of the above

Answer 1

For financial planner

40% in stock, and 60% in money fund

For banker

100% with 5% , in 0.5 years

Then if N= 5000

Planner yield= N•(4/10)• 7/100 + N(6/10)•(4.5/100)

. = N• (28/1000 + 27/1000)

. = 5000(55/1000)

. = 275

Banker yield= N • (1+ 5/100)^ 2 - N

. = N• (1.05 ) - N

. = 5512.5 - 5000

. = 512.5

Then answer is

Highest yield is Banker's advice

OPTION B)