What is the average price per share for John's holdings after Date 4?

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In summary, John bought 25 shares for $400, sold 6 shares for $90, and has 19 remaining shares for $310. This means that his average price per share is $310/19 = $16.32. Additionally, it is not necessary to identify the specific purchase dates of the 6 shares sold at Date 3, as the overall calculation remains the same regardless.
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vertciel
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Dear all,

Although the following question involves some terms using finance, I post it here since it seems to involve some probability. I hope that it will be fine.

Thank you very much for your help.

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Problem: Suppose that John buys shares in only one company and he does so as follows:

Date 1. He buys 10 shares @ $10.
Date 2. He buys 5 shares @ $20.
Date 3. He sells 6 shares @ $15.
Date 4. He buys 10 shares @ $20.

After Date 4, what is the average price per share for John's holdings?

Attempt at Solution :

Before Date 3, the weighted average price is given by:

[itex]\frac{10}{15}$10 + \frac{5}{15}$20[/itex]

and the total amount before Date 3 is just $30.

At Date 3, John sells [itex] 6 \times $15 = $90 [/itex] of this stock

[itex]\Rightarrow[/itex] Total stock holdings = [itex] 200 - 90 = $110 [/itex].

Now, this is where I am having trouble. To calculate the average price, it appears that I would need to identify specifically the purchase dates of the 6 shares sold at Date 3, since Date 1 and Date 2 involve different purchase prices.

Is this correct? If so, how would I continue my calculation if I were to assume that the 6 shares sold were randomly chosen from the 15 shares from Date 1 and Date 2?
 
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  • #2
For tax purposes, he needs to identify. However as your calculation shows, it doesn't matter otherwise. In fact you can simply add up his purchases, 25 shares for $400 and his sales 6 shares for $90, leaving 19 shares for $310.
 

1. What is the formula for calculating average price?

The formula for calculating average price is: Sum of all prices divided by the number of prices.

2. How do you calculate average price for a set of items with different prices?

To calculate average price for a set of items with different prices, add all the prices together and then divide by the total number of items in the set.

3. What is the importance of calculating average price in a scientific experiment?

Calculating average price helps to determine the overall trend or central tendency of the data and can provide a more accurate representation of the data compared to just looking at individual prices.

4. What are some limitations of using average price as a measure of central tendency?

One limitation is that it can be influenced by extreme values or outliers in the data. Another limitation is that it does not take into account the distribution of the data, so it may not accurately represent the entire set of prices.

5. How can you use average price to compare different sets of data?

Average price can be used to compare different sets of data by calculating the average for each set and then comparing the averages. This can help to identify any significant differences or similarities between the two sets of data.

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