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This lesson is a part of the course Statistical Concepts and Market Returns
Harmonic mean is calculated by dividing the number of observations (n) by the sum of reciprocals of all observations.
Harmonic mean has some applications in finance. One application is to calculate the average purchase cost of shares purchased over time.
Let’s say that an investor purchased a stock worth $100 for two months. The share price at the time of each purchase was 5 and 7. What will be the average purchase price? We can calculate this as follows.
