Price-Weighted Index

Posted in Finance, Accounting and Economics Terms, Total Reads: 397
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Definition: Price-Weighted Index

Price-weighted index is an index in which each stock affects the index in relation to its price/share. The index value is calculated by summing the prices of each stock in the index and dividing them by the total number of stocks outstanding. Stocks with a greater price will be given greater weight and, therefore, will have a more influence on the performance of the index.

 

For example, let's assume that the following companies are in the ABC price-weighted index:



A price-weighted index is basically the sum of the members' stock prices divided by the number of members. Thus, here our example, the ABC index is: $5 + $7 + $10 + $20 + $1 = $43 / 5 = 8.6.


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