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

Financial issues of divestitures, FINANCIAL ISSUES OF DIVESTITURES Many...

FINANCIAL ISSUES OF DIVESTITURES Many corporations review the business portfolio to determine the operations that fit their core strategies. The firm's desire to achieve more f

Limitation of weighted average cost of the capital, Q. Limitation of weight...

Q. Limitation of weighted average cost of the capital? 1) Determine the Weight; the first and foremost difficulty in computing the average cost is to an easy job. This type of

Call-put parity, Call-Put Parity P + S = C + E * [1/(1+i)] ^n     where...

Call-Put Parity P + S = C + E * [1/(1+i)] ^n     where:      P = the market price of the put    S = the market price of the stock    C = the market price of the call

ABF, HOW TO CALCULATE ASSESSED BANK FINANCE

HOW TO CALCULATE ASSESSED BANK FINANCE

Define a callable bond, What is a callable bond?  What is a putable bond?  ...

What is a callable bond?  What is a putable bond?  How do each of these features affect their respective market interest rates? A callable bond may be retired untimely at the dis

What is capital recovery, Q. What is Capital recovery? sometimes one ma...

Q. What is Capital recovery? sometimes one may be interested to find out the annual amount paid in the order to redeem a loan of a specific amount over a specific period togeth

Explain present value of a series of cash flows, Q. Explain Present Value o...

Q. Explain Present Value of a Series of Cash Flows? Present Value of a Series of Cash Flows: - In a business circumstances it is very natural that returns received by a firm ar

Expected value application in finance - safety stock level, Safety Stock Le...

Safety Stock Level The simple Economic Order Quantity (EOQ) model used in inventory management assumes that the reorder point  will be at a level equal to (Lead time in number

What do you signify by investment decisions, Q. What do you signify by Inve...

Q. What do you signify by Investment Decisions? Investment Decision: - The most significant function of financial management isn't only the procurement of external funds for th

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