Question

Suppose that you have bought a total of 3000 shares of stock of a particular company. You bought 1300 shares of stock at $17 per share, 900 shares of stock at $12 per share, and the remaining shares at $21 per share. What is the average price you paid per share of stock?

Answer 1

Answer:

Average price = $16.56

Explanation:

The weighted average price is the average value of a group of shares bought and different points in time and at different prices.

It is the average value that considers the proportion of each share (weight) purchased at a particular price when computing the average price  of a group of shares. The implication of this method of computing average is simply that shares with higher quantity (weight) will have their prices more represented than those with lower quantity.

This average price is useful to evaluate and track the performance of an investment that is made of series of transactions by comparing the average price to the market price.

To calculated the weighted average price, we multiply the quantities of shares purchased by their respective prices and sum all together and then divide by  the total quantity of shares.

We can apply this to the question

Weighted average price = ( (1300× $17) +( 900× $12) + ( 800× $21))/3,000

                                        = 49,700/3,000

                                         = $16.56

Note 800 in bold is the balance of shares as stated in the question which is 3000 - (1300+ 900) = 3,000- 2,200 = 800.