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CMA Final · Strategic Financial Management · Fundamental Analysis and Technical Analysis

Over a 14-day period, the average gain on up-days for a stock of Narmada Motors is Rs 3 and the average loss on down-days is Rs 1.50 (both averaged over the 14 days). Using the standard RSI formula, RSI = 100 - 100/(1+RS), where RS = average gain/average loss, the RSI is closest to:

RSI is about 66.7. Relative strength is average gain divided by average loss, which is 3 divided by 1.5, or 2. Then RSI equals 100 minus 100 divided by 3, giving 66.67. Quoting 33.3 forgets to subtract from 100.

  1. A66.7Correct
  2. B75.0
  3. C50.0
  4. D33.3

Explanation

RS = 3/1.5 = 2. RSI = 100 - 100/(1+2) = 100 - 33.33 = 66.67. The option 33.3 arises from forgetting to subtract 100/(1+RS) from 100. The option 75 would need RS = 3.

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