Usually, most classes assign different weights to exams than homework assignments, internal tests, and competitions. Now, let’s say you want to calculate your Maths class’s current average course grade. For example, for calculating the average monthly mobile bills for a year, we can simply add up the total billed amounts for the past twelve months and divide it by twelve then, we can get a rough idea of the average bill paid since the mobile bill cycle is roughly for the same period of time i.e., One month. This will only work if all the items are weighted equally. We can simply add the values of all the items and divide them by the total number of items to calculate the average. We are familiar with finding the athematic mean or average for a series of items. Few examples of Weighted average beta and a weighted average cost of capital (WACC). The weighted average is used in various financial formulas. Significance and Use of Weighted Average Formula To calculate the Weighted Average, we must have a specific weightage for each variable taken as a value, and the weightage must equal to 100%. The first component is Relative Weightage, and the second is Value inputs. To Calculate the Weighted Average Formula, we need Relative Weightage and Value. The weights taken should be equal to 100% or 1. The weights must be represented in terms of total relevancy as a percentage. The weighted average formula is used for calculating the average value for a particular set of numbers with different levels of relevancy. This shows Jagriti will be receiving 15.4% weightage average returns from the Portfolio of stocks A, B, C, and D. Weighted Average = W1 X1 + W2 X2 + W3 X3 + W4 X4 ……+ Wn Xn.And, Value (Rate of Return) for the stocks as follows: A, B, C & D as 15%, 12%, 17%, and 16%, respectively.We have Relative weights of the stocks in the portfolio as follows: A, B, C & D as 30%, 15%, 30%, and 25%, respectively.Jagriti wants to calculate her average return on the portfolio as per the current market situation. The expected return as per the current market situation on these Stocks are as follows: Return on Stock A is 15 %, Return on Stock B is 12 %, Return on Stock C is 17%, and Return on Stock D is 16 % respectively. Jagriti’s portfolio comprises 30% in Stock A, 15% in Stock B, 30% in Stock C, and the remaining 25% in Stock D. Let’s assume Jagriti has invested money in Stocks of different companies. This shows that the overall grade of Anand is 76%. Weighted Average = W1 X1 + W2 X2 + ……+ WnXn.We have Relative weights for the following categories as follows: Then all of these new values must be added together. Now we have to find out the overall grade of Anand.Įach category value must first be multiplied by its percentage to calculate a weighted average with percentages. Let’s assume Anand has enrolled in a Maths course, and his final grade will be determined based on the following categories: tests 30%, final exam 40%, quizzes 15%, and homework 15%.Īnand has scored the following marks in each category: Tests-80, Final exam-65, quizzes-85, homework-90. This shows Anand will be receiving 16% weightage average returns from Investments A, B & C. Weighted Average = W1 X1 + W2 X2 + ……+ Wn Xn.And, Value (Rate of Return) for investments A, B & C is 15%, 10%, and 20%, respectively.īy using the Weighted Average Formula, we get.We have Relative weights for investments A, B & C as 40%, 20%, and 40%, respectively.We need to calculate a weighted average for the rates of return Anand would receive. These investments have a rate of return as follows: Investment A is 15 %, Investment B is 10%, and Investment C is 20%, respectively. Let’s assume Anand has invested the money in the following proportionate: 40% in investment A, 20% in investment B, and 40% in investment C. Let’s see a few examples to understand the Weighted Average Formula: Example #1
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