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27 January, 21:34

Abe and Bea each have some money to invest in a CD (Certificate of Deposit). Abe has $5,000 and Bea has $20,000. Both are interested in making a 6-month investment at Synchrony Bank. The CD rates for Synchrony Bank (as of July 8, 2015) are as listed below. With 0.41% interest, Abe would get $5,010 in six months. With 0.50% interest, Bea would get $20,050 at the end of six months. If they pool their funds, they will be able to purchase a $25,000 CD, which pays a higher interest rate. The 0.60% interest will return $25,075 at the end of six months. Obviously, Abe gets back his $5,000 principle, and Bea gets back her $20,000 principle. How should the $75 interest be divided between the two of them

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  1. 27 January, 23:25
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    Abe = $17.5

    Bae = $57.5

    Explanation:

    Abe's principle = $5,000

    Bea's principle = $ 20,000

    Abe individual investment yield at 0.41% = (5010-5000) = $10

    Bae's individual investment yield at) 0.50% = (20000-20050) $50

    Combined investment yield at 6 % = (25,075 - (20,000+5000) = $75

    Extra interest yield = (75 - (50+10) = $15

    The extra interest yield of $15 should be shared equally among Abe and Bae as a result of joint effort

    = 15/2 - $7.5

    Therefore, the $75 interest is shared as below

    Abe = $10 (interest on individual principle) + $7.5 = $17.5

    Bae = $50 (interest on individual principle) + $7.5 = $57.5
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