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 chequing account for each percentage point that the interest rate on bonds exceeds the interest rate on his chequing account.Currently he keeps $100,000 in bonds,which pay him 7%.What is the current interest rate on chequing accounts?

Question

Quizplus · Accepted Answer

Mr. Pierpont keeps $100,000 in bonds, which is $20,000 more than the minimum $80,000. This means the interest rate on bonds exceeds the chequing account rate by 2 percentage points. Since bonds pay 7%, the chequing account rate is 5%.

MrPierpont Has Wealth of $200,000