Weighted Average

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harpazo

harpazo

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Four loan balances are $6,500, $3,600, $5,400, and $7,500, respectively. The current interest rates for the loans are 7%, 5%, 6%, and 9%, respectively. If the four are to be consolidated into one loan, what is the WEIGHTED AVERAGE interest rate on that loan?

A) 6.75%
B) 7.01%
C) 7.04%
D) 7.10%

Solution:

6500(0.07) = 455

3600(0.05) = 180

5400(0.06) = 324

7500(0.09) = 675

(455 + 180 + 324 + 675)/4 = does not lead to any of the choice answers.
 
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harpazo said:
Four loan balances are $6,500, $3,600, $5,400, and $7,500, respectively. The current interest rates for the loans are 7%, 5%, 6%, and 9%, respectively. If the four are to be consolidated into one loan, what is the WEIGHTED AVERAGE interest rate on that loan?

A) 6.75%
B) 7.01%
C) 7.04%
D) 7.10%

Solution:

6500(0.07) = 455

3600(0.05) = 180

5400(0.06) = 324

7500(0.09) = 675

(455 + 180 + 324 + 675)/4 = does not lead to any of the choice answers.
Click to expand...
Try:

[(455 + 180 + 324 + 675)/(65 + 36 + 54 + 75)] % = ?%
 
harpazo said:
Four loan balances are $6,500, $3,600, $5,400, and $7,500, respectively. The current interest rates for the loans are 7%, 5%, 6%, and 9%, respectively. If the four are to be consolidated into one loan, what is the WEIGHTED AVERAGE interest rate on that loan?

A) 6.75%
B) 7.01%
C) 7.04%
D) 7.10%

Solution:

6500(0.07) = 455

3600(0.05) = 180

5400(0.06) = 324

7500(0.09) = 675

(455 + 180 + 324 + 675)/4 = does not lead to any of the choice answers.
Click to expand...
Did you understand why did your method not work?
 
harpazo said:
Four loan balances are $6,500, $3,600, $5,400, and $7,500, respectively. The current interest rates for the loans are 7%, 5%, 6%, and 9%, respectively. If the four are to be consolidated into one loan, what is the WEIGHTED AVERAGE interest rate on that loan?

A) 6.75%
B) 7.01%
C) 7.04%
D) 7.10%

Solution:

6500(0.07) = 455

3600(0.05) = 180

5400(0.06) = 324

7500(0.09) = 675

(455 + 180 + 324 + 675)/4 = does not lead to any of the choice answers.
Click to expand...
Here you are simply calculating the average of interest earned - without regard to the principal.
 
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