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

Calculate the interest value , 1. Suppose a firm's tax rate is 35%. What af...

1. Suppose a firm's tax rate is 35%. What affect would a $10 million operating expense have on this year's earnings?  What effect would it have on next year's earnings? 2. What

Forms of bank finance, Q. Forms of Bank Finance? A firm can draw funds ...

Q. Forms of Bank Finance? A firm can draw funds from a bank within the maximum credit limit sanctioned. It can draw funds in the following forms: 1) Overdraft 2) Cash Cre

Prepare general journal entries, On 1 July 2006, Goela Ltd was registered a...

On 1 July 2006, Goela Ltd was registered and offered 1 000 000 ordinary shares to the public at an issue price of $1.70, payable as follows: 50c on application (due 31 August)

State about the detection risk, State about the Detection risk This is ...

State about the Detection risk This is the risk that auditors 'substantive procedures don't detect a material misstatement in an account balance or class of transactions. It is

Non-interest rate indexes, Generally, an interest rate or an interest...

Generally, an interest rate or an interest rate index is used as a reference rate for However, through financial engineering, issuers have been able to construct

Show the analysis of credit information, Q. Show the Analysis of Credit Inf...

Q. Show the Analysis of Credit Information? Analysis of Credit Information: - Subsequent to obtaining the desired information from various sources the information is examined t

Define the main objectives of the bretton woods system, What were the main ...

What were the main objectives of the Bretton Woods system? Answer: The major objectives of the Bretton Woods system are to acquire exchange rate stability and promote internation

Portfolio management and asset pricing, I am facing some problems in my ass...

I am facing some problems in my assignment of Portfolio Management. Can anybody suggest me the proper explanation for it?

Chain index numbers, Chain Index Numbers So far, we have constructed in...

Chain Index Numbers So far, we have constructed index numbers with a fixed base. Sometimes, comparison between the current/given year and the base year becomes meaningless once

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