An investment portfolio is shown below.
| Investment | Amount Invested | ROR |
|---|---|---|
| Savings Account | $3,200 | 2.1% |
| Municipal Bond | $4,900 | 4.5% |
| Preferred Stock | $940 | 10.5% |
| Common Stock A | $1,675 | -3.5% |
Using technology, calculate the weighted dollar amount of the savings account.
A. -$58.63
B. $58.63
C. -$67.20
D. $67.20
Answer (2)
Convert the percentage rate of return to a decimal: 2.1% = 0.021
Multiply the amount invested by the decimal rate of return: $3 , 200 × 0.021 = $67.20
The weighted dollar amount of the savings account is $67.20 .
Explanation
Understanding the Problem We are asked to calculate the weighted dollar amount of the savings account in an investment portfolio. The amount invested in the savings account is $3,200, and the rate of return (ROR) is 2.1%. To find the weighted dollar amount, we need to multiply the amount invested by the rate of return.
Converting Percentage to Decimal First, we need to convert the percentage rate of return to a decimal by dividing by 100: 2.1% = 100 2.1 = 0.021
Calculating Weighted Dollar Amount Next, we multiply the amount invested ($3,200) by the decimal rate of return (0.021): $3 , 200 × 0.021 = $67.20
Final Answer Therefore, the weighted dollar amount of the savings account is $67.20.
Examples
Understanding weighted dollar amounts is crucial in finance. For instance, if you invest in multiple assets like stocks, bonds, and real estate, calculating the weighted return helps you understand the overall performance of your portfolio. Let's say you invest $10,000 in stocks with an expected return of 8% and $5,000 in bonds with an expected return of 4%. The weighted return is calculated as follows: Stocks: ($10,000 / $15,000) * 8% = 5.33%, Bonds: ($5,000 / $15,000) * 4% = 1.33%. Total weighted return = 5.33% + 1.33% = 6.66%. This gives you a clear picture of your portfolio's expected performance.
The weighted dollar amount of the savings account is calculated by multiplying the amount invested ($3,200) by the rate of return converted to decimal (0.021). This results in a weighted dollar amount of $67.20. Thus, the correct answer is option D, $67.20.
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