How to Calculate the Price-Weighted Index
A price-weighted index is a popular method of calculating a stock index. One popular price-weighted stock index is the Dow Jones Industrial Average. The S&P 500, however, is a capitalization-weighted index -- that is, its price calculation is based on the price and number of shares outstanding for each stock in the index. At its core, the price-weighted index is the simplest method of indexing to calculate, as the only inputs that are used in its calculation are stock prices and total number of stocks included in the index.
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Instructions
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Determine which stocks you wish to include in your price-weighted index.
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Find the price of these stocks, and sum them to get the total price of the stocks that are in the index.
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Divide the total from Step 3 by the number of different stocks that make up the index. The result will be a price-weighted index. For example, if there are three stocks in the index, priced at $25, $45, and $80, totaling these you would get $150. Dividing by 3 results in a figure of $50, which is the value of the price-weighted index.
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