Definition of Average Price

Average Price is a method used to determine the average price paid by an investor for a security that has been purchased at different times and prices such as through dollar cost averaging. An investor’s average price is determined by using the following formula:

Average Price = Total of purchase prices / The number of purchases

Applying "Average Price" to Securities Exams:

The desirable outcome for an investor who uses dollar cost averaging is that over time his average cost will be lower than the average selling price.

month 1: $100 invested $20 share price 5 shares purchased
month 2: $100 invested $12.50 share price 8 shares purchased
month 3: $100 invested $10 share price 10 shares purchased
month 4: $100 invested $25 share price 4 shares purchased
total $400 invested $67.50 price 27 shares purchased

Average price =$67.50 / 4 =$16.75

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