Fixed weight aggregates method - fisher''s ideal method, Financial Management

Assignment Help:

Fixed Weight Aggregates Method

In fixed weight aggregates method, the weights used are neither from base period nor from current period but from a representative period. These weights are generally referred to as representative weights or as fixed weights. These fixed weights are unaffected by the selection of the base period. This is the advantage under this method. The user of the method will be able to select a base year that is convenient to him enabling him to change the price base yet retaining the fixed weights.

The students may refer to the weights assigned to various industry groups constituting the Index of Industrial Production presented in the annexure.

Fisher's Ideal method

Prof. Irving Fisher has proposed a formula for constructing index numbers, which is called the 'Fisher's Ideal Index'. The Ideal index is given by the following formula:

Fisher's Price Index = 160_fisherideal method.png  x 100

As evident from the above formula,

Fisher's Ideal Index is the geometric mean of the Laspeyres and Paasche indices.

The following advantages can be cited in favor of Fisher's Ideal Index:

  1. Theoretically, geometric mean is considered the best average for the construction of index numbers and Fisher's index uses geometric mean.

  2. As already noted, Laspeyres index and Paasche index indicate opposing characteristics and Fisher's index reduces their respective biases. In fact, Fisher's ideal index is free from any bias. This has been amply demonstrated by the time reversal and factor reversal tests.

  3. Both the current year and base year prices and quantities are taken into account by this index.

    Fisher's Ideal Index

    808_fisherideal method1.png

    The index is not widely used owing to the practical limitations of collecting data. Fisher's Ideal Quantity Index can be found out by the formula,

    258_fisherideal method2.png

    x 100

Related Discussions:- Fixed weight aggregates method - fisher''s ideal method

Partition of investment risk, Partition of Investment Risk The expecte...

Partition of Investment Risk The expected returns and the fluctuation in returns are two factors in evaluating investments. Expected Returns While the actual returns

Different types of cash flow to bondholder of coupon bonds, What are the di...

What are the different types of cash flow to the bondholder of coupon bonds? Coupon bonds deliver two different kinds of cash flow to the bondholder are as follows: a. Face

Important features floating rate notes, Reference Index Every FRN choos...

Reference Index Every FRN chooses its own reference index upon which the calculation of each successive new coupon is based. The most commonly used reference index is LIBOR. It

Conversion value, Conversion value is the amount which investors wi...

Conversion value is the amount which investors will receive by immediately exchanging the bonds for equity stock and selling the stock at prevailing market

Define discounting the equity cash flow, Which of these two methods is bett...

Which of these two methods is better: discounting the Equity Cash Flow or discounting the Free Cash Flow? The results we get by discounting the Equity Cash Flow and the Free Ca

Define decision rule for accepting or rejecting projects, What is the decis...

What is the decision rule for accepting or rejecting proposed projects while using net present value? While using the net present value decision rule any project along with a net

The time value of money , Calculate the present value and determine the npv...

Calculate the present value and determine the npv, Financial Management. Assume today is 3 December 2009. Helen is 30 years old and has a Bachelor of Business. She is currently em

Define trustworthy collateral from the lenders perspective, What is trustwo...

What is trustworthy collateral from the lenders' perspective?  Explain whether accounts receivable and inventory are trustworthy collateral. Assets which are readily marketable

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd