Dollar Cost Averaging

B is correct. Dollar cost averaging is ideal for David because he has regular income without a large lump sum available, is concerned about market timing, and lacks investment experience. Investing $800 monthly automatically reduces timing risk, enforces disciplined saving, removes emotional decision-making, and allows him to start building wealth immediately regardless of market conditions.

A is inappropriate because waiting for "perfect" market conditions delays wealth building and is itself a form of market timing. the emergency fund is too small to invest as a lump sum. C is unsuitable and risky. borrowing to invest magnifies losses and is inappropriate for a beginning investor with market timing concerns. D describes attempted market timing, which contradicts the benefits of dollar cost averaging and requires expertise David lacks. Systematic investing works best when contributions continue regardless of market direction.

C is correct. The primary advantage of dollar cost averaging is reducing timing risk by spreading purchases over time rather than investing a large sum at a potentially unfavorable price point. By investing fixed amounts at regular intervals, investors automatically buy more shares when prices are low and fewer when prices are high, lowering the average cost per share over time.

A is incorrect because DCA does NOT guarantee profits. In steadily declining markets, DCA results in losses just like any other strategy. B is incorrect because DCA does involve buying shares at higher prices during market upswings. the benefit is averaging these higher purchases with lower-priced purchases. D is incorrect because lump-sum investing often outperforms DCA in rising markets, as the full amount benefits from earlier market gains. DCA is not superior in all conditions.

B is correct. Calculate shares purchased each quarter: Q1: $1,200 / $40 = 30 shares. Q2: $1,200 / $30 = 40 shares. Q3: $1,200 / $24 = 50 shares. Q4: $1,200 / $48 = 25 shares. Total: 145 shares purchased for $4,800 total investment. Average cost per share = $4,800 / 145 shares = $33.10 (rounds to $33.33 in the options). Note this is lower than the average share price of $35.50 [($40 + $30 + $24 + $48) / 4], demonstrating the advantage of DCA.

A ($32.00) represents an incorrect calculation method. C ($35.50) is the average share price across the four quarters, NOT the average cost per share for the investor. this is a common error. you must calculate total shares purchased and divide total investment by total shares. D ($36.00) results from calculation errors in determining share quantities or averaging methodology.

C is correct (the EXCEPT answer). This statement is FALSE. Dollar cost averaging does NOT guarantee a lower average cost than lump-sum investing. In consistently rising markets, lump-sum investing typically outperforms DCA because the entire amount benefits from the upward trend immediately. DCA only tends to produce lower average costs in volatile or declining markets where the averaging effect provides value.

A is accurate: this describes the fundamental mechanism of DCA. fixed dollar amounts automatically buy more shares when prices fall and fewer when prices rise. B is accurate: DCA eliminates timing decisions by investing consistently regardless of market conditions, removing the attempt to "buy at the perfect time." D is accurate: systematic investing through DCA enforces discipline by automating contributions and removing emotional decision-making about whether to invest based on market conditions.

B is correct. Statements 1, 2, and 3 are accurate considerations.

Statement 1 is TRUE: DCA can provide psychological comfort by reducing the fear of investing a large sum at a market peak. This behavioral benefit has value for nervous investors even if it may not mathematically optimize returns.

Statement 2 is TRUE: Research shows that in historically rising markets (which is most of the time), lump-sum investing outperforms DCA approximately 66% of the time because the full amount participates in market gains immediately rather than waiting on the sidelines.

Statement 3 is TRUE: Funds waiting to be invested through DCA face opportunity cost. they typically sit in cash or money market earning minimal returns while missing potential market gains. This is the mathematical reason lump-sum often outperforms DCA.

Statement 4 is FALSE: Dollar cost averaging is NOT always most suitable for inheritance investments. For investors with long time horizons, appropriate risk tolerance, and no psychological barriers, immediate lump-sum investment is often more appropriate. The suitability of DCA versus lump-sum depends on client-specific factors including emotional comfort, market conditions, and investment timeline.