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

Over a 14-day period, the total of upward price changes on days when the stock closed higher was Rs 42, and the total of downward changes on days when it closed lower was Rs 28. Using simple averages over 14 days for the Relative Strength Index, what is the RSI?

The RSI is 60. Average gain is Rs 3 and average loss is Rs 2, so RS is 1.5. RSI equals 100 minus 100 divided by 2.5, which is 60. Choosing 40 comes from omitting the subtraction from 100.

  1. A40.0
  2. B50.0
  3. C60.0Correct
  4. D66.7

Explanation

Average gain = 42/14 = 3; average loss = 28/14 = 2. RS = 3/2 = 1.5. RSI = 100 - 100/(1+1.5) = 100 - 40 = 60. The value 40 results from using 100/(1+RS) and forgetting to subtract it from 100.

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