A price-weighted index is a stock index in which each stock influences the index in proportion to its price per share. The value of the index is generated by adding the prices of each of the stocks in the index and dividing them by the total number of stocks.
Calculating a price-weighted average
To calculate a price-weighted average, or any arithmetic average for that matter, simply add the numbers (stock prices) together, and then divide by the number of stocks in the average.
For example, if you want to calculate a price-weighted average of four stocks, with prices $100, $70, $60, $30, you can do so as follows: