Although investing all at once works best when stock prices are rising, dollar-cost averaging can be a good way to take advantage of a fluctuating market. Dollar-cost averaging is nvestment strategy designed to reduce volatility in which securities are purchased in fixed dollar amounts at regular intervals regardless of what direction the market is moving. strategy is also called the constant dollar plan. You are considering a hypothetical $1,200 investment in a media company's stock. Your choice is to invest the money all at once or dollar-cost average at the rate of $100 per mo for one year. Assume that the company allows you to purchase "fractional" shares of its stock. (a) If you invested all of the money in January and bought the shares for $12 each, how many shares could you buy? shares (b) From the following chart of share prices, calculate the number of shares that would be purchased each month using dollar-cost averaging and the total shares for the year. Round to the nearest tenth. Month January February March April Amount Cost per Invested Share $100 100 100 100 $12.00 11.55 10.90 9.75 Shares Purchased Month July August September October Amount Invested $100 100 100 100 Cost per Share $13.40 12.60 11.90 12.70 Shares Purchased
Although investing all at once works best when stock prices are rising, dollar-cost averaging can be a good way to take advantage of a fluctuating market. Dollar-cost averaging is nvestment strategy designed to reduce volatility in which securities are purchased in fixed dollar amounts at regular intervals regardless of what direction the market is moving. strategy is also called the constant dollar plan. You are considering a hypothetical $1,200 investment in a media company's stock. Your choice is to invest the money all at once or dollar-cost average at the rate of $100 per mo for one year. Assume that the company allows you to purchase "fractional" shares of its stock. (a) If you invested all of the money in January and bought the shares for $12 each, how many shares could you buy? shares (b) From the following chart of share prices, calculate the number of shares that would be purchased each month using dollar-cost averaging and the total shares for the year. Round to the nearest tenth. Month January February March April Amount Cost per Invested Share $100 100 100 100 $12.00 11.55 10.90 9.75 Shares Purchased Month July August September October Amount Invested $100 100 100 100 Cost per Share $13.40 12.60 11.90 12.70 Shares Purchased
Advanced Engineering Mathematics
10th Edition
ISBN:9780470458365
Author:Erwin Kreyszig
Publisher:Erwin Kreyszig
Chapter2: Second-order Linear Odes
Section: Chapter Questions
Problem 1RQ
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Transcribed Image Text:Although investing all at once works best when stock prices are rising, dollar-cost averaging can be a good way to take advantage of a fluctuating market. Dollar-cost averaging is an
investment strategy designed to reduce volatility in which securities are purchased in fixed dollar amounts at regular intervals regardless of what direction the market is moving. This
strategy is also called the constant dollar plan.
You are considering a hypothetical $1,200 investment in a media company's stock. Your choice is to invest the money all at once or dollar-cost average at the rate of $100 per month
for one year. Assume that the company allows you to purchase "fractional" shares of its stock.
(a) If you invested all of the money in January and bought the shares for $12 each, how many shares could you buy?
shares
(b) From the following chart of share prices, calculate the number of shares that would be purchased each month using dollar-cost averaging and the total shares for the year.
Round to the nearest tenth.
Month
January
February
March
April
May
June
Amount Cost per
Invested Share
total shares =
$100
100
100
100
100
$12.00
11.55
10.90
9.75
11.25
12.15
Shares
Purchased
Month
July
August
September
October
November
December
Amount
Invested
$100
100
100
100
100
(c) What is the average price you pay per share if you purchase them all in January?
Cost per
Share
$13.40
12.60
11.90
12.70
11.45
12.05
Shares
Purchased
(d) What is the average price you pay per share if you purchase them using dollar-cost averaging? (Round your answer to the nearest cent.)
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