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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.
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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)
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