Calculating Harmonic Mean

Harmonic mean is calculated by dividing the number of observations (n) by the sum of reciprocals of all observations.

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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.

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