1. Assuming that Arlene goes ahead with her plan to buy 200 more shares of LKV, she will have invested...


1. Assuming that Arlene goes ahead with her plan to buy 200 more shares of LKV, she will have invested $24,000 to buy 800 shares. Suppose that instead she had invested $4,000 each month over the six months and purchased shares at the following prices: $25, $35, $30, $20, $15, and $30. Set up a table that shows the number of shares purchased each month, the total value of her holdings, and her profit or loss after the purchase.
2. Compare Arlene’s actual performance with the performance from dollar cost averaging. Calculate the average share cost each way, and use the values in your discussion.
3. Do you think Arlene is the type of person who should use dollar cost averaging? Explain.
4. Do you agree with Mark that dollar cost averaging guarantees good investment results? Explain.
Arlene Elton has been investing in LKV Aeronautics common stock over the past six months. She bought 300 shares initially at $25 a share. A month later, after a nice move by LKV, she bought another 300 shares at $35 a share. LKV then went into a tailspin over the next three months, and at the end Arlene considered selling all her shares at $15 a share. She’s glad she didn’t, though, because the stock rebounded in the last month and is currently selling at $30 a share. Arlene has saved some more money and is now thinking of buying 200 more shares. Before buying them, she has decided to talk to a friend, Mark Hatfield, who also invests in stocks. Mark uses dollar cost averaging. He thinks Arlene should also consider this technique. Indeed, he is convinced that dollar cost averaging almost guarantees successful investment results over time.
Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on...

This problem has been solved!

Do you need an answer to a question different from the above? Ask your question!

Step by Step Answer:

Related Book For  answer-question
View Solution
Create a free account to access the answer
Cannot find your solution?
Post a FREE question now and get an answer within minutes. * Average response time.
Question Posted: March 19, 2015 10:41:52