In: Finance
Ed Moura has $88000 invested in stocks paying 8%.
How much additional money should he invest in certificates of deposit paying 3% so that the average return on the two investments is 4%?
Amount Invested by Ed Moura in Stocks = $88,000
Expected Return from stocks = 8%
- Let the additional amount invested in certificates of deposit by Ed Mours be X
Expected Return of certificates of deposit = 3%
- Total amount invested on both investments = ($88,000 + X)
Average Return on 2 investments = 4%
Calculating the additional money that should be invest in certificates of deposit:-
Average Return on 2 investments = (Weight if Stocks)(Expected Return from stocks) + (Weight of certificates of deposit)(Expected Return of certificates of deposit)
0.04(88,000+X) = 7040 + 0.03X
3520 + 0.04X = 7040 + 0.03X
3520 = 0.01X
X = $352,000
So, additional money should he invest in certificates of
deposit is $352,000