Financial Modeling Tutorials

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- Deferred Annuity Formula
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- IRR Examples (Internal Rate of Return)
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- NPV Formula
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- Payback period Formula
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- Weighted average Formula
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- Median Formula in Statistics
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- Decile Formula
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- Quartile Deviation
- Expected Value Formula
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- Decrease Percentage Formula
- Percent Error Formula
- Holding Period Return Formula
- Cost Benefit Analysis
- Cost Benefit Analysis Examples
- Cost Volume Profit Analysis
- Opportunity Cost Formula
- Opportunity Cost Examples
- Mortgage APR vs Interest Rate
- Normal Distribution Formula
- Standard Normal Distribution Formula
- Normalization Formula
- Bell Curve
- T Distribution Formula
- Regression Formula
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- Multiple Regression Formula
- Correlation Coefficient Formula
- Correlation Formula
- Population Variance Formula
- Covariance Formula
- Coefficient of Variation Formula
- Sample Standard Deviation Formula
- Relative Standard Deviation Formula
- Standard Deviation Formula
- Volatility Formula
- Binomial Distribution Formula
- Quartile Formula
- P Value Formula
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- R Squared Formula
- Adjusted R Squared
- Regression vs ANOVA
- Z Test Formula
- F-Test Formula
- Quantitative Research

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**Weighted Average Formula**(Table of Contents)

## Weighted Average Formula

The weighted average formula is quite simple, let’s have a look at it –

**Here, w = respective weight (in percentage), x = value**

### Weighted Average Example

Let’s take a simple weighted average example to illustrate how we calculate a weighted avg.

**Ramen has invested his money into four types of investments. He has invested 10% of his money in Investment A, 20% in Investment B, 30% in Investment C, and 40% in Investment D. The rates of return for these investments are 5%, 10%, 15%, and 20%. Calculate weighted avg of the rates of return Ramen would receive.**

In this weighted average example, we are given both w and x.

Using the weighted average formula, we get –

- Weighted Avg = w
_{1}x_{1 }+ w_{2}x_{2 }+ w_{3}x_{3 }+ w_{4}x_{4} - Weighted Avg = 10% * 5% + 20% * 10% + 30% * 15% + 40% * 20% = 0.005 + 0.02 + 0.045 + 0.08 = 15%.

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### Explanation of Weighted Average Formula

In simple average, we don’t pay heed to the weight. That’s why when we calculate the simple average, the result becomes too generic. However, in the case of wt average, we pay right emphasis on the right weight and we portray the weight in terms of percentages.

4.9 (927 ratings)

If you look at the weighted average formula, you would see that the value is being multiplied by the right amount of weight and that is the beauty of wt average.

- For example, if we need to find out the average of 10, 13, and 25, in simple average, we will just add three numbers and divide it by 3. Simple average of the above three numbers would be = (10 + 13 + 25) / 3 = 48 / 3 = 16.
- If we take the same example with weight; then the result would be quite different. Let’s say that the weight of number 10 is 25%, 13 is 30%, and 25 is 45%. Wt average of the above three numbers of would be = (10 * 25%) + (13 * 30%) + (25 * 45%) = 2.5 + 3.9 + 11.25 = 17.65.

### Use of Weighted Average Formula

The usage of the weighted avg is quite broad.

As for weighted average example, we can talk about the weighted avg cost of capital. In calculating the weighted avg cost of capital, we take the cost of equity and the cost of debt into account. And depending on the capital structure of the company, we calculate the WACC.

Another example where we use the weighted average cost of capital is the issuance of outstanding shares. Let’s say that a firm has issued 100 shares in the 1^{st} day of January. And then another 100 shares are issued on the 1^{st} day of July.

Now, while calculating the outstanding shares available during the year, we will use the weighted avg method. Since first 100 shares are issued in the 1^{st} January, it would be applicable for the whole year. But the next 100 shares are only issued in the middle of the year; that’s why the next 100 shares would be available only for 6 months. And here would be the calculation of weighted avg of outstanding shares = (100 * 1) + (100 * 0.5) = 100 + 50 = 150.

**Weighted Average in Excel (with excel template)**

Let us now do the same example as above in Excel.

This is very simple. You need to provide the values of “X” and “Y”.

You can easily calculate the ratio in the Weighted Average in the Excel template provided.

### Recommended Article

This is a guide to Weighted Average Formula, its uses along with practical Weighted Average Example. Here you also find the weighted average calculator along with the downloadable Weighted Average in excel template.

- Average Formula in Excel
- Average Formula
- How to Calculate Age in Excel Sheet?
- Cost of Capital Formula
- Weighted Average in Excel
- What is Cost of Equity Formula?
- XNPV and NPV Differences
- Financial Functions in Excel
- Capital Asset Pricing Model Formula
- IRR vs NPV differences

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