Weighted Average

Weighted average is an average in which each quantity that is being averaged is assigned a weight. The relative contribution of each quantity on the average is determined by these weightings. The concept of weighted average is used in various financial formulas.

For example, to calculate weighted average, we take the value of letter tiles which is found in the popular game of Scramble.

Value: 1 0 8 5 4 3 2 1 0

Occurrences: 2 2 1 1 0 8 7 68 2

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Now, to average these values, we do a weighted average taking into account the number of occurrences of each value as the weight. To determine the weighted average:

1)      Each value is multiplied by its weight (Ans. 20, 16, 5 , 40, 24,14, 68 and 0)

2)      To get the total value, we add up the products of value times weight (Ans. Sum =187)

3)      To get the total weight, the weight themselves are added ( Ans. Sum  = 100)

4)      Finally, the total weight is divided by the total value (Ans. 187/100 = 1.87)

 

Edited and Updated 31st May 2014

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