Question

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​%?

Answer 1

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