Question 1
Multiple ChoiceA portfolio manager invests $1,000 annually in a security over four years at the following prices:
Exhibit 1: Four-Year Purchase Prices
Year Purchase | Price (USD per unit)
Year 1 | 50.00
Year 2 | 66.00
Year 3 | 72.00
Year 4 | 82.00
The average price is best represented as the:
Explanation
A is correct. The harmonic mean is appropriate for calculating the average purchase price per unit when equal amounts are invested each year. It gives equal weight to each unit purchased and adjusts for price variation.
x_{h} = 4 ÷ [(1/50.00) + (1/66.00) + (1/72.00) + (1/82.00)]