Mr.Pierpont has wealth of $200,000.He wants to keep at least $80,000 in bonds at all times,and will shift $10,000 into bonds from his checking account for each percentage point that the interest rate on bonds exceeds the interest rate on his checking account.If the interest rate on checking accounts is 4% and the interest rate on bonds is 9%,how much does Mr.Pierpont keep in his checking account?

Question

Quizplus · Accepted Answer

Mr. Pierpont shifts $10,000 into bonds for each percentage point difference. The interest rate difference is 5% (9% - 4%), so he shifts $50,000 (5 * $10,000) into bonds. Starting with $200,000 and keeping at least $80,000 in bonds, he ends up with $130,000 in bonds ($80,000 + $50,000). Therefore, he keeps $70,000 in his checking account ($200,000 - $130,000).

MrPierpont Has Wealth of $200,000