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Dollar-cost averaging is a systematic program of investing equal sums of money at regular intervals, regardless of the price of the investment. Investing by
Dollar-cost averaging is a systematic program of investing equal sums of money at regular intervals, regardless of the price of the investment. Investing by dollar-cost averaging means that you purchase number of shares when the share price is down. And you purchase number of shares when the price is up. Therefore, dollar-cost averaging allows you to purchase most of your investment shares at costs. Suppose that David is an investor using a dollar-cost averaging investment strategy. Each month David invests $900, regardless of the price of the investment at that particular time. The following table shows how a dollar-cost averaging strategy would affect David's investment in a fluctuating market, a declining market, and a rising market. For each market type, calculate the average share price and the average share cost based on the information given in the table. Note: Round your answers to the nearest penny. Fluctuating Market Regular Investment Share Price Shares Acquired Period 1: Period 2: $900 900 $50 18 30 30 Period 3: 900 50 18 Period 4: 900 30 30 Period 5: 900 50 18 Totals: $4,500 $210 114 Average share price: $ Totals: $4,500 $210 114 Average share price: $ Average share cost: $ Declining Market Regular Investment Share Price Shares Acquired Period 1: $900 $50 18 Period 2: 900 45 20 Period 3: 900 30 30 Period 4: 900 25 36 Period 5: 900 20 45 Totals: $4,500 $170 149 Average share price: $ Average share cost: Rising Market Regular Investment Share Price Shares Acquired Period 1: $900 $15 60 Period 2: 900 20 45 Period 3: 900 25 36 Period 4: 900 30 30 Period 5: 900 45 20 Totals: $4,500 $135 191 Average share price: Average share cost: 55 $ Round your answers to nearest dollar. Enter all values as positive. In the fluctuating market, David purchased a total of $ shares. At the end of the last investment period, his investment is worth per share, which means that David's final account balance would be $ . However, David has invested a total of $4,500, which means that he has received a of $ Round your answers to nearest dollar. Enter all values as positive. In the declining market, David purchased a total of of $ shares. At the end of the last investment period, his investment is worth per share, which means that David's final account balance would be $ . However, David has invested a total of $4,500, If you are using a dollar-cost averaging strategy, and if you sell your investment shares when the market is significantly down, you will not profit. This means that you should keep investing as long as the longer-term prospect suggests an eventual increase in price. which means that he has received a Round your answers to nearest dollar. Enter all values as positive. In the rising market, David purchased a total of However, David has invested a total of $4,500, shares. At the end of the last investment period, his investment is worth per share, which means that David's final account balance would be $ which means that he has received a of $ buy fewer and fewer shares as the price continues to rise. . You will generally profit from dollar-cost averaging in a rising market because you will
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