The smart investor knows that he should not put all his eggs in one basket. In this
Question:
The smart investor knows that he should not put all his “eggs in one basket”. In this Prof. Dallis has placed a sum of money (you need to determine how much) into three different “baskets” each earning a different interest rate.
The amount he earns from each investment is simply the Amount invested x the Interest Rate. For example, if I invest $1000 for one year in CD’s then I would earn interest of $1000 x 5% = $50.
Think of Interest and Dividends as a similar concept. Just add them together to determine his total return on the investments.
1. Draw the investment Picture – use the data in Column A to draw a PIE CHART. Ok to do on paper or in Excel. If doing by hand, try and be close with the numbers.
2. Compute the Weighted average of the investment. The weighted average is an area concept the product of the Size of the investment x the Rate that it earns. This will give you the average rate of interest earned on all three investments.
3. Now with the average interest rate compute the total invested if the amount earned for the year was $6000 in interest and dividends.
4. Using answer 3 and the %’s by category in the table what amount was invested in each basket? This total should equal the amount found in step 3.
Expert Answer:
Solution to 1 Solution to 2 Type of Investment Amount of Investment Return on Investment Amount Earn... View the full answer
