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Algebra/Weighted Averages

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Expert: - 9/28/2009


Question
Hello:

I need some clarification regarding the following calculation:

(A) 5% X $1000 = $50

(B) 2% X $2000 = $40

This is a total return or an average of $90/$3000 = 3%

Here is the solution using a weighted average: 5w + 2(1-w) = 3.

My questions are as follows:
(1) How did the 5% and 2% become whole numbers in this equation and why, and how did the $3000 become 3 if indeed the 3 is from $3000?

(2) What does 1-w represent?

I thank you for any helpful reply that you may offer.

Answer
Hello Kenneth,

I'm not sure I understand the question. Could you be more specific about what you mean by:

"This is a total return or an average of $90/$3000 = 3%"?

Also, when you state "Here is the solution using a weighted average..." you haven't mentioned what the question is. The solution to what?

Here's a bit of advice though. Instead of understanding the solution, try to solve the problem on your own. In most cases you will see where the equation comes from at some point.

Cheers,
David

Algebra

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