Arithmetic average meaning

Arithmetic average is the standard, unweighted mean used in legal and finance documents: add all figures in the set and divide by the number of figures. Also called the mean or simple average. Across England and Wales, Scotland, Northern Ireland and Ireland, it is a descriptive mathematical term rather than one generally defined by legislation or case law, although individual contracts or instruments may define it expressly. It is commonly used to: determine average market prices of shares or commodities over a look‑back period for price‑adjustment clauses; calculate rent reviews; set or test interest and default rates; support valuation methodologies; quantify damages or loss; measure financial covenant compliance; and determine FX or benchmark rates. Key features and drafting points: - Each data point carries equal weight (unlike a weighted average or geometric mean). - Specify the data source, observation period, business/non‑trading day conventions, treatment of missing or zero values, and rounding rules to avoid disputes. - Consider whether outliers should be excluded or capped if commercially intended. Do not confuse arithmetic average with “average” in marine or property insurance (for example, general average or an average clause), which are distinct legal concepts. Usage and meaning are consistent across the UK and Ireland.