Ed Moira has 45000 invested in stocks paying 5%. How much additional money should he invest in certificates of deposit paying 2% so that the average return on the two investments is 3%?

Answer 1

Since the relationship is linear, you can use a weighted average. Let CD is the money invested in the CD

then

{ 5(45,000) + 2CD }/(45,000 + CD) = 3

Doing the math, we have

225,000 + 2CD = 3CD + 135,000

Solving for CD, we have

CD = 90,000 (If you insert the units of $ & %, you see they are equal on equal on each side & will

therefore cancel out!)