An investment portfolio is shown below.
| Investment | Amount Invested | ROR |
|---|---|---|
| Savings Account | $2,600 | 1.7% |
| Municipal Bond | $3,700 | 3.2% |
| Preferred Stock | $575 | 12.9% |
| Common Stock A | $1,225 | -5.6% |
Using technology, calculate the weighted dollar amount of the municipal bond.
A. $44.20
B. $74.18
C. $118.40
D. $184.00
Answer (2)
Calculate the weighted dollar amount by multiplying the amount invested in the municipal bond by its rate of return.
The amount invested is $3 , 700 and the rate of return is 3.2% .
Multiply $3 , 700 by 0.032 to get the weighted dollar amount.
The weighted dollar amount of the municipal bond is $118.40 .
Explanation
Understanding the Problem We are asked to calculate the weighted dollar amount of the municipal bond. This is found by multiplying the amount invested in the municipal bond by its rate of return.
Identifying the Values The amount invested in the municipal bond is $3 , 700 , and the rate of return is 3.2% . To find the weighted dollar amount, we multiply these two values.
Calculating the Weighted Dollar Amount We calculate the weighted dollar amount as follows: Weighted Dollar Amount = Amount Invested × Rate of Return Weighted Dollar Amount = $3 , 700 × 0.032 Weighted Dollar Amount = $118.40
Stating the Answer Therefore, the weighted dollar amount of the municipal bond is $118.40 .
Examples
Understanding weighted dollar amounts is crucial in finance for assessing investment performance. For instance, if you invest in multiple assets, each with a different rate of return, calculating the weighted dollar amount for each asset helps you understand how much each investment contributes to your overall portfolio return. This is particularly useful in comparing the performance of different investments and making informed decisions about asset allocation to optimize your investment strategy. For example, knowing the weighted dollar amount helps in rebalancing a portfolio to maintain a desired risk level or to capitalize on more profitable opportunities.
The weighted dollar amount of the municipal bond, calculated by multiplying the amount invested ($3,700) by the rate of return (3.2%), is $118.40. Thus, the correct answer is C. $118.40.
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