Hello YouTube, Todd Ault here, and Welcome to Wall Street Words! Today's Wall Street term is "Purchase Price"
Everyone should be excited about purchase price. This is something you got to know, what you pay for it, what you sell it for. The purchase price is when you go to buy a stock or a bond, a piece of real estate. What did you pay for that security? Would you pay for that real estate? The purchase price is important to note because that obviously determines what your tax basis could be at a future date, where you'd want to sell it. One thing you need to pay attention to is the purchase price is what you paid for it, plus the commission. That's your total purchase price. Today's word is Purchase Price.
Definition - The price an investor pays for an investment, and the price becomes the investor’s cost basis for calculating gain or loss when selling the investment. The purchase price includes any commission or sales charges paid for the investment, and the weighted average cost is used for multiple purchases of the same security.
Assume, for example, an investor buys 100 shares of Ford common stock on three different dates over a five-year period, including 100 shares purchased at a market price of $40, $60 and $80 per share. To determine the cost basis of the purchases, the investor needs to calculate the weighted average cost, which is the total dollar amount of the purchases divided by the number of shares purchased. For example, at 100 shares each, the dollar amounts of Ford stock purchases are $4,000, $6,000 and $8,000, or a total of $18,000, and the purchase total is divided by 300 shares to equal $60 per share. If the investor adds to the stock position, he or she can calculate a new weighted average price by adding the dollar amount of the new purchases and the additional shares to the calculation. The formula can also be adjusted for stock sales if the investor only sells a portion of the holdings. With commission costs added, the investor’s weighted average cost might approximate $62 per share.
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Wall Street Words word of the day = Purchase Price
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