




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


 