Bob Brinker's Marketimer

  Thursday June 25, 2009

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Formula for Calculating Price per Share

With the following handy formula, you can compare what you would have paid per share using different investment strategies. This is the formula used to compare the results of buying a fixed number of shares per month to purchasing a fixed dollar amount of shares per month.

You can determine your average price per share (what you paid) with this formula:

Average Price per Share

If you purchased the same number of shares of an investment each month over several months, you would pay more per share than if you had invested that same total amount of money divided equally over the same number of months. The reason? You would actually buy more shares using the dollar cost averaging method.

Dollar cost averaging gives you an advantage because it helps reduce the average price you pay. This is true because the dollar cost averaging method takes advantage of the fluctuation in price.

1. One unit of ownership in a corporation or mutual fund. 2. A given amount of money one deposits with a credit union to become a member. A share entitles the customer to certain ownership rights (such as the right to vote for members of the board of directors), has a stated value, and pays dividends.
The purchase of a potentially appreciable asset such as a stock, a bond, a property, or a unit of production. The purchase provides funds for the growth of businesses and governments.
The medium of exchange used in trade or commerce.
The practice of systematically investing the same dollar amount each period (monthly, quarterly, etc.) into a security. By doing this, one will be buying fewer shares when the price is up, and more when it is down. For example, if the client is investing $100 every month, that $100 will buy five shares if the price is $20, while it will buy only four shares if the price goes up to $25. It is usually advised to make the investment on the same day each period.
The up and down movement of prices, usually applied to stocks. Some think they can be charted and theoretically used to predict future price activities.
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