Weighted Average

Filed Under »
Dictionary Says

Definition of 'Weighted Average'

An average in which each quantity to be averaged is assigned a weight. These weightings determine the relative importance of each quantity on the average. Weightings are the equivalent of having that many like items with the same value involved in the average.
Investopedia Says

Investopedia explains 'Weighted Average'

To demonstrate, let's take the value of letter tiles in the popular game Scrabble.

Value:              10    8    5    4      3    2     1     0
Occurrences:    2     2    1    10    8    7    68    2  

To average these values, do a weighted average using the number of occurrences of each value as the weight. To calculate a weighted average:

1. Multiply each value by its weight. (Ans: 20, 16, 5, 40, 24, 14, 68, and 0)
2. Add up the products of value times weight to get the total value. (Ans: Sum=187)
3. Add the weight themselves to get the total weight. (Ans: Sum=100)
4. Divide the total value by the total weight. (Ans: 187/100 = 1.87 = average value of a Scrabble tile)

Related Video for 'Weighted Average'

Sign Up For Term of the Day!

Try Our Stock Simulator!

Test your trading skills!

Articles Of Interest

  1. Moving Averages: What Are They?

    What is the difference between simple and exponential moving averages? Learn the details here.

  2. Use Duration And Convexity To Measure Bond Risk

    Find out how this measure can help fixed-income investors manage their portfolios.

  3. Weighted Moving Averages: The Basics

    We take a closer look at the linearly weighted moving average and the exponentially smoothed moving average.

  4. How Stock Market Indexes Changed Investing

    Find out how the first market averages were calculated and what they mean for investors today.

  5. How Now, Dow? What Moves The DJIA?

    Find out how this index tracks market movements - and where it falls short.

  6. Investors Need A Good WACC

    Weighted average cost of capital may be hard to calculate, but it's a solid way to measure investment quality.

  7. Volatility - The Birth Of A New Asset Class

    Learn more about the trading possibilities with the VIX.

  8. Whisper Numbers: Should You Listen?

    These unofficial forecasts hold the potential for insider insight - and investment risk.

  9. Financial Physics: "Natural" Market Laws

    Physics uses math to define the laws of the universe; here, we look at what laws explain the financial universe.
Sponsored links

comments powered by Disqus
Hot Definitions

  1. Love Money

  2. Shark Watcher

  3. Judo Business Strategy

  4. Dogs Of The Dow

  5. Chinese Hedge

  6. X-Mark Signature

Recommended
Loading, please wait...
See More »
Trading Center