CAS Exam 9 Spring 2017, Question 8
Study guide: Exam 9
Given the following:
| Week | Company Stock Price | Index Value |
|---|---|---|
| 1 | $101.88 | $263.26 |
| 2 | $101.75 | $263.27 |
| 3 | $102.22 | $277.50 |
| 4 | $109.68 | $305.46 |
| 5 | $117.86 | $334.75 |
An investor wants to buy the company's stock because the investor expects the stock price to continue to increase at the rate that it has been increasing over the past two weeks.
Part a (0.75 points)
Identify and describe an information processing bias that may be present in the investor's expectation, and relate it to the information given above.
Part b (1 point)
Recommend and justify an action for the investor to take using the relative strength technical analysis technique.
Part c (0.5 points)
Describe the purpose of technical analysis in relation to behavioral finance.
Part d (0.5 points)
Explain one reason why the technical analysis recommendation in part b. above may not be valid.
No current syllabus covers this question; it is kept for the record.
Answer this question and see the worked solution