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

Over the last 14 days, the average of daily gains for a share of Sundaram Textiles was Rs 6 (average taken over all 14 days) and the average of daily losses was Rs 3 (also over all 14 days). Using the standard Relative Strength Index formula, RSI = 100 - 100/(1 + RS), what is the RSI?

The RSI is 66.67. Relative strength is average gain divided by average loss, which is 6/3 = 2. Substituting in 100 - 100/(1+RS) gives 100 - 33.33 = 66.67. The value of 33.33 is only the subtracted term, not the final index.

  1. A50.00
  2. B66.67Correct
  3. C75.00
  4. D33.33

Explanation

RS = average gain / average loss = 6/3 = 2. RSI = 100 - 100/(1+2) = 100 - 33.33 = 66.67. Using 33.33 alone is a mistake, as it is the 100/(1+RS) term, not the RSI.

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