The cost to a buyer if stock

Question

Explain each of the following,including any brokerage fees,

the cost to a buyer of stock

 

Answer 1

The purchase price of stock is the price an investor pays for a security. Brokerage fees are what broker/dealers charge to execute your trade and what customers pay to buy stocks or securities. Say for instance, you purchased 100 shares of Coca Cola (KO) at $42 a share and paid $35 brokerage fee. Your cost to acquire Coca Cola would be $4,235 or $42.35 per share. You need to know your acquisition cost and brokerage fees to determine at what point you will sell. Now, if you though KO would rise to $50 a share, would you buy this stock?

 

If you thought that Coca Cola's would show significant profits during the year and would rise to $50 in the next two quarters (six months) you might choose to make the investment. If on the other hand, you believe that Coca Cola might not show strong gains this year but might show stronger growth over a longer period of time, then you might opt out of this investment and just wait instead. It all depends on your acceptable rate of return and the time horizon you expect to achieve this goal.

 

It is often difficult to predict price movements in stocks but many times one can look at the company's current financial position, their competitive position in the marketplace, their previous growth history and stability, and from this data--- attempt to arrive at at analysis that can predict the future direction of your possible investment choice.

 

If you were certain that Coca Cola stock price was going to skyrocket over the next six or twelve month period, you might feel confident in purchasing shares of Coca Cola. You might even decide to employ more leverage in your investment and purchase calls on the underlying stock instead. Purchasers of call contracts have a maximum loss of the premium they pay to purchase the contract. Their possible gain like those of long stock purchasers are unlimited. Their possible loss is the price of the premium paid--- if the stock falls to zero, whereas purchasers of stock stand to risk 100% of their investment if the company would go out of business and did not have sufficient assets to pay their common stockholders.

 

This answer is for educational purposes only and is not an endorsement to buy or sell securities.