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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.

Ex:
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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