After graduation, you start working as the financial officer for a start up non government organization helping street children...
Your organization has received a donation of 20 million pesos from a philanthropist. If your institution needs 500,000 PHP annually for operating expenses, how much of the donation will you invest in mutual funds and treasury bills if they respectively earn 3% and 2% annually. Solve using two variables. (Assume the money has to be invested in both types of investment for security reasons).
Use the format Given, required, solution, checking, and final answer.
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Total amount of money = 20000000
The interest needed annually = 500000
The annual interest rate in mutual funds = 3%
The annual interest rate in treasury bills = 1%
The fraction of donation to be invested in each investment method.
Let the fraction of donation which is to be invested in mutual funds be P and the other fraction be Q.
Then P + Q = 1 -------> Equation 1
The amount to be invested in mutual funds = 20000000 * P
The amount to be invested in treasury bills = 20000000 * Q
The annual interest from mutual funds = `20000000*P*(3/100)`
The annual interest from treasury bills = 20000000*Q*(2/100)
But we know the total interest should be 500000.
600000P + 400000Q = 500000 --------Equation 2
Solving equation 1 and equation2 would give you,
P = 0.5 and Q = 0.5
The fractions to be invested in mutual funds are 1/2 and in treasury bill is 1/2.
Therefore, exactly half of the donation should go to mutual funds and other half should go to treasury bills.
The amount to be invested in mutual funds = 20000000 * 0.5
The interest from mutual funds = 10000000 * (3/100)
The amount to be invested in treasury bills = 20000000 * 0.5
The interest from treasury bills = 10000000 * (2/100)
The total interest is = 300000+200000 = 500000
Therefore the answer is correct.
Half (1/2) of the donation that is 10 million should be invested in mutual funds and other half that is 10 million should be invested in treasury bills.
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