CFA Level I · CFA Level I Exam · Statistical Characteristics of Asset Returns
An investor buys shares of a company with EUR 1,200 invested at the end of each of three months at prices of EUR 10, EUR 20 and EUR 40 per share. The average cost per share paid (the harmonic mean of prices) is closest to:
Equal amounts invested means the harmonic mean applies. The investor buys 120, 60 and 30 shares, totaling 210 shares for EUR 3,600, so the average cost is about EUR 17.14. The arithmetic mean of EUR 23.33 overstates the cost.
- AEUR 15.00
- BEUR 17.14Correct
- CEUR 23.33
Explanation
Shares bought: 120 + 60 + 30 = 210. Total invested = 3,600. Average cost = 3,600 / 210 = 17.14. The arithmetic mean of prices (23.33) is distractor C, which ignores that more shares are bought at low prices.
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