Weighted Average

AAA

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 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)

VIDEO

RELATED TERMS
  1. Euler's Constant

    The limit of the sum of 1 + 1/2 + 1/3 + 1/4 ... + 1/n, minus ...
  2. Weighted Average Cost Of Capital ...

    A calculation of a firm's cost of capital in which each category ...
  3. Volume Weighted Average Price - ...

    A trading benchmark used especially in pension plans. VWAP is ...
  4. Narrow-Based Weighted Average

    An anti-dilution provision used to ensure that investors are ...
  5. Risk-Weighted Assets

    In terms of the minimum amount of capital that is required within ...
  6. Weighted

    A mathematical process by which figures and/or components are ...
Related Articles
  1. An Introduction To Stock Market Indexes
    Investing Basics

    An Introduction To Stock Market Indexes

    Investopedia explains the five most talked about indexes and what makes them all different.
  2. thinkstock|istock
    Mutual Funds & ETFs

    Introduction To Fundamentally Weighted Index Investing

    If you believe the market smiles on those who focus on value, growth or income, this vehicle may be for you.
  3. Investing

    What is the difference between weighted average shares outstanding and basic weighted average shares?

    Outstanding shares refers to stock that is currently held by investors, including shares held by the public, and restricted shares that are owned by company officers and insiders. The number ...
  4. Mutual Funds & ETFs

    S&P 500 ETFs: Market Weight Vs. Equal Weight

    Both indexes include the same stocks, but their weightings give them very different properties.
  5. Mutual Funds & ETFs

    3 Types Of Indexing For ETF Success

    ETF success relies on the index with which it's paired. Discover three index genres for tracking average market performance.
  6. Active Trading Fundamentals

    Weighted Moving Averages: The Basics

    We take a closer look at the linearly weighted moving average and the exponentially smoothed moving average.
  7. Bonds & Fixed Income

    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.
  8. Fundamental Analysis

    Exploring The Exponentially Weighted Moving Average

    Learn how to calculate a metric that improves on simple variance.
  9. Options & Futures

    What is the weighted average of outstanding shares? How is it calculated?

    The amount of shares outstanding in a company will often change due to a company issuing new shares, repurchasing and retiring existing shares, and other financial instruments such as employee ...
  10. Technical Indicators

    What is the Double Exponential Moving Average (DEMA) formula and how is it calculated?

    Discover the equation for double exponential moving average, or DEMA, and learn how it is calculated for a better understanding of how it works.

You May Also Like

Hot Definitions
  1. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  2. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  3. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
  4. Special Administrative Region - SAR

    Unique geographical areas with a high degree of autonomy set up by the People's Republic of China. The Special Administrative ...
  5. Annual Percentage Rate - APR

    The annual rate that is charged for borrowing (or made by investing), expressed as a single percentage number that represents ...
  6. Free Carrier - FCA

    A trade term requiring the seller to deliver goods to a named airport, terminal, or other place where the carrier operates. ...
Trading Center