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

Over the last 14 trading days, the sum of all upward price changes of a stock was 42 points and the sum of all downward changes was 28 points (absolute). Using the simple ratio of total gains to total losses, what is the 14-day Relative Strength Index (RSI)?

The RSI is 60. Relative strength is total gains divided by total losses, 42/28 = 1.5. RSI equals 100 minus 100 divided by (1 plus RS), which is 100 - 40 = 60, indicating moderately bullish momentum.

  1. A60.00Correct
  2. B40.00
  3. C33.33
  4. D75.00

Explanation

RS = 42/28 = 1.5. RSI = 100 - 100/(1+1.5) = 100 - 40 = 60. The value 40 is the loss share of total movement, and 33.33 results from using 100 - 100/RS.

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