Imagine that your parents give you $1000 so that you can gain some experience in the stock market. You have identified a company that you think has good growth prospects, with shares currently selling at $10 each. You could immediately buy 100 shares, but you remember something called dollar cost averaging. You decide to invest $250 four times: today, in three months, in six months, and in nine months. After three months, the stock is selling at $12.50, and you feel dumb for not having put all of your money into the stock right away. After six months, however, the stock is back to $10 per share, and after nine months it drops to $6.25. After a full year, the stock is again trading at $10 per share. Ignoring any commissions or trading fees, approximately how much are your stocks worth after a full year? (Hint: you need to calculate how many shares you bought at each of the four purchase points.)
Answers:
- $800,
- $900,
- $1,000,
- $1,100,
- $1,200