Some points are more important than others. And, some results contribute more than others to the final result. Weighted average is an average where different quantities have different weight. And, it is calculated using the formula
Example 1. In a particular module an assignment contributes 30%, and final exam 70% to the final result. A student obtained 80% marks in assignment and 65% in the final exam. What are average marks?
So, the student obtained 69.5% marks in the module.
An investor usually invests in different assets. And, the combination of the assets hold by an investor is called portfolio.
Consider the portfolio that consists of two assets. The percentage investment (weight) and return on each investment is given the following table.
Example 2. Return on each investment is given in the above table. What is the portfolio Return?
The portfolio return is the weighted average of the assets’ returns.
Hence, the portfolio return is 5.8%.