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Chapter 2: Q19I (page 285)

Question: Use the data in Table 9.3 to compute a five-day moving average for Computers, Inc. Can you identify any buy or sell signals?

Short Answer

Expert verified

Answer

Day 12 and 33- Sell signal.

Day 21 – Buy signal

Step by step solution

01

 Step 1: Computation of 5 day average

To find the average, let’s add these up and divide by 5.

Trading Day

5 Day Morning average= Total of stock price of 5 days of Computers Inc/5

Days 1–5

(19.63 + 20 + 20.50 + 22 + 21.13)/5 = 20.652

Days 2–6

(20 + 20.50 + 22 + 21.13 + 22)/5 = 21.126

Days 3–7

(20.50 + 22 + 21.13 + 22 + 21.88)/5 = 21.502

Days 4–8

(22 + 21.13 + 22 + 21.88 + 22.50)/5 = 21.902

Days 5–9

(21.13 + 22 + 21.88 + 22.50 + 23.13)/5 = 22.128

Days 6–10

(22 + 21.88 + 22.50 + 23.13 + 23.88)/5 = 22.678

Days 7–11

(21.88 + 22.50 + 23.13 + 23.88 + 24.50)/5 = 23.178

Days 8–12

( 22.50 + 23.13 + 23.88 + 24.50 + 23.25)/5 = 23.452

Days 9–13

(23.13 + 23.88 + 24.50 + 23.25 + 22.13)/5 = 23.378

Days 10–14

(23.88 + 24.50 +23.25 + 22.13 + 22)/5 = 23.152

Days 11–15

(24.50 + 23.25 + 22.13 + 22 + 20.63)/5 = 22.502

Days 12–16

(23.25 + 22.13 + 22 + 20.63 + 20.25)/5 = 21.652

Days 13–17

(22.13 + 22 + 20.63 + 20.25 + 19.75)/5 = 20.952

Days 14–18

(22 + 20.63 + 20.25 + 19.75 + 18.75)/5 = 20.276

Days 15–19

(20.63 + 20.25 + 19.75 + 18.75 + 17.50)/5 = 19.376

Days 16–20

(20.25 + 19.75 + 18.75 + 17.50 + 19)/5 = 19.050

Days 17–21

(19.75 + 18.75 + 17.50 + 19 + 19.63)/5 = 18.926

Days 18–22

(18.75 + 17.50 + 19 + 19.63 + 21.50)/5 = 19.276

Days 19–23

(17.50 + 19 + 19.63 + 21.50 + 22)/5 = 19.926

Days 20–24

(19 + 19.63 + 21.50 +22 + 23.13)/5 = 21.052

Days 21–25

(19.63 + 21.50 + 22 + 23.13 + 24)/5 = 22.052

Days 22–26

(21.50 + 22 + 23.13 + 24 + 25.25)/5 = 23.176

Days 23–27

(22 + 23.13 + 24 + 25.25 +26.25)/5 = 24.126

Days 24–28

(23.13 + 24 + 25.25 + 26.25 + 27)/5 = 25.126

Days 25–29

(24 + 25.25 + 26.25 + 27 + 27.50)/5 = 26.000

Days 26–30

(25.25 + 26.25 + 27 + 27.50 + 28)/5 = 26.800

Days 27–31

(26.25 + 27 + 27.50 + 28 + 28.50)/5 = 27.450

Days 28–32

(27 + 27.50 + 28 + 28.50 + 28)/5 = 27.800

Days 29–33

(27.50 + 28 + 28.50 + 28 + 27.50)/5 = 27.900

Days 30–34

(28 + 28.50 + 28 + 27.50 + 29)/5 = 28.200

Days 31–35

(28.50 + 28 + 27.50 + 29 + 29.25)/5 = 28.450

Days 32–36

(28 + 27.50 + 29 + 29.25 + 29.50)/5 = 28.650

Days 33–37

(27.50 + 29 + 29.25 + 29.50 + 30)/5 = 29.050

Days 34–38

(29 + 29.25 + 29.50 + 30 + 28.50)/5 = 29.250

Days 35–39

(29.25 + 29.50 + 30 + 28.50 + 27.75)/5 = 29.000

Days 36–40

(29.50 + 30 + 28.50 + 27.75 + 28)/5 = 28.750

02

Calculation of buy or sell signals

(Since day 12 price < moving average)= Sell signal

(Since day 21 price > moving average) = Buy signal

(Since day 33 price < moving average) = Sell signal

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Most popular questions from this chapter

You are a consultant to a large manufacturing corporation considering a project with the following net after-tax cash flows (in millions of dollars):

YEARS FROM NOWAfter-Tax CF
0
1-9
10		-20
10
20

The project’s beta is 1.7. Assuming r f = 9% and E ( r M ) = 19%, what is the net present value of the project? What is the highest possible beta estimate for the project before its NPV becomes negative?

Which of the following statements about the security market line (SML) are true?

a. The SML provides a benchmark for evaluating expected investment performance.

b. The SML leads all investors to invest in the same portfolio of risky assets.

c. The SML is a graphic representation of the relationship between expected return and beta.

d. Properly valued assets plot exactly on the SML.

Are the following true or false? Explain.

a. Stocks with a beta of zero offer an expected rate of return of zero.

b. The CAPM implies that investors require a higher return to hold highly volatile securities.

c. You can construct a portfolio with beta of .75 by investing .75 of the investment budget in T-bills and the remainder in the market portfolio.

The semi-strong form of the efficient market hypothesis asserts that stock prices:

a. Fully reflect all historical price information.

b. Fully reflect all publicly available information.

c. Fully reflect all relevant information including insider information.

d. May be predictable.

Use the following data in answering CFA Questions:

Investor “satisfaction” with portfolio increases with expected return and decreases with variance according to the “utility” formula: U = E(r) - ½ Aσ2where A = 4.

Question: Based on the formula for investor satisfaction or “utility,” which investment would you select if you were risk averse with A = 4?
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