




A weighted average is an average that adjusts for the frequency of individual values. Here's an example of a weighted average: suppose 20 people are asked to estimate the number of goats Farmer Jones has. One says 4; seven, 5; eleven, 6; and one, 30. To find the weighted average, multiply each value (ie, number of goats) by the number of people who made that estimate, add up the results, and then divide by the number of people. Thus the weighted average is [(1x4)+(7x5)+(11x6)+(1x30)]/(20)= 6.75. In a weighted average, values that are unusual have relatively little effect. In the example, the weighted average was raised relatively little by a very high estimate of 30 goats, because only one person made that guess. A weighted average is used frequently in business and investing. Consensus earnings estimates by analysts, for example, are usually computed by weighted average. The weighted average cost of capital, while more complex than our simple example would indicate, also involves using a weighted average.
Rate this weighted average definition...




Where is the market headed? The answer may surprise you. Find out with the exclusive & Barron's recommended charts of Chart of the Day. 

Popular Terms: implied volatility, EBITDA, APR, liquidity ratio, labor relations, VIX, current ratio, 1031 exchange, balance sheet, exdividend, FTSE, risk management, Zero Cost Collar, retained earnings, dividends payable, stock market close, phantom income, diluted share, debt service coverage, required rate of return, 1035 exchange, command economy, inflation, 144a, real GDP, annual return, limit order, deferred tax, stock split, 401a, whollyowned subsidiary, margin rate, class C shares, option premium, in escrow, open position, deferred revenue, Key Rate Duration, minority interest, per diem, exdividend date, covered put, reverse mortgage, cancelled check, average price per share, FICO score, quality assurance, LIBOR, irrevocable trust


 