Carcass wrote:
This year, a woman has a lucrative one-year position. During this year, she will give a fraction f of her salary to her husband, a private investor, to invest and they will live this year on the remainder. Through investments, her husband can turn each dollar she gives him into 1 + r, which will be deposited in a bank account. Their goal is to save & invest enough money so they can live off this money for two years following the end of the wife's position. Toward this end, they want to choose f such that the amount in the account at the end of the year is twice what they lived off this year. In terms of r, what should f be?
A. 1/(r+1)
B. 2/(r+2)
C. 2/(2r+1)
D. 2/(r+3)
E. 2/(2r+3)
Let her salary be \(T\)
Husband receives \(f\)
Leftover = \((T - f)\)
As the husband receives \((1 +r)\) dollars for each dollar invested. At the end of year, they must have \(f(1 + r)\) dollars.
Now, as per the question:
\(f(1 + r) = 2(T - f)\)
\(f(1 + r) = 2T - 2f\)
\(f(1 + r) + 2f = 2T\)
\(f(3 + r) = 2T\)
\(f = \frac{2T}{(r + 3)}\)
Hence, option D