Ed Moura has $21000 invested in stocks paying 8%. How much additional money should he invest in certificates of deposit paying 4% so that the average return on the two investments is 5%?
.08(21000) + .04x = .05(21000+x)
To find out how much additional money Ed Moura should invest in certificates of deposit, we need to use the concept of weighted average.
Let's assume that the additional money he needs to invest in certificates of deposit is x dollars.
First, let's calculate the current return from the stocks investment. Ed Moura has $21000 invested in stocks, and it is earning an 8% return. So the return from stocks can be calculated as:
Return from stocks = Total investment * Return rate
Return from stocks = $21000 * 8% = $1680
Now, let's calculate the return from the certificates of deposit. The additional money invested in certificates of deposit is x dollars, and it is earning a 4% return. So the return from certificates of deposit can be calculated as:
Return from certificates of deposit = Additional investment * Return rate
Return from certificates of deposit = x * 4% = 0.04x
The total return from both investments should be equal to the average return of 5%:
Total return = Return from stocks + Return from certificates of deposit
Total return = $1680 + 0.04x
Since the total return should be equal to 5% of the total investment, we can set up the equation:
Total return = Average return * Total investment
Total return = 5% * (21000 + x)
Now we can equate the two expressions for total return:
$1680 + 0.04x = 0.05(21000 + x)
Next, we can solve this equation to find the value of x:
1680 + 0.04x = 1050 + 0.05x
0.01x = 630
x = 630 / 0.01
x = $63,000
Therefore, Ed Moura should invest an additional $63,000 in certificates of deposit in order to achieve an average return of 5% on both investments.