1. What is Weighted Average?

The weighted average is a calculation that takes into account the varying degrees of importance of the numbers in a data set. In stock investing, it's used to calculate the average price paid for shares when purchased at different prices.

2. How Does the Calculator Work?

The calculator uses the weighted average formula:

Where:

• \( P_i \) — Price per share for transaction i (USD/share)
• \( Q_i \) — Quantity of shares for transaction i (shares)
• \( \sum \) — Summation of all transactions

Explanation: The formula calculates the average price per share weighted by the number of shares purchased at each price point.

3. Importance of Weighted Average

Details: Weighted average is crucial for investors to determine their true cost basis per share, which is essential for calculating capital gains/losses and making informed investment decisions.

4. Using the Calculator

Tips: Enter at least one price and quantity pair. You can enter up to three different purchase transactions. Prices should be in USD/share and quantities in whole shares.

5. Frequently Asked Questions (FAQ)

Q1: Why use weighted average instead of simple average?
A: Weighted average accounts for the different quantities purchased at each price level, giving a more accurate representation of your true average cost.

Q2: How many transactions can I calculate?
A: This calculator handles up to 3 transactions, but the formula can be extended to any number of transactions.

Q3: Does this work for fractional shares?
A: Yes, though the calculator currently shows whole numbers, you can enter decimal quantities if needed.

Q4: Can I use this for other investments?
A: Yes, the weighted average concept applies to any asset purchased at multiple price points (bonds, commodities, etc.).

Q5: How does this help with tax reporting?
A: Knowing your weighted average cost basis helps accurately calculate capital gains when you sell portions of your holdings.