(Solution Download) Moving Averages If Baldwin limits transactions to buying


1. If Baldwin limits transactions to buying and subsequently selling on the various signals, when does Baldwin make her first purchase? (For simplicity, assume all transactions are in units of 100 shares and there are no commissions.)

 

2. If she follows this strategy for the entire time period through January 2005, how many transactions does she make and what is her gain or loss?

 

3. If she follows a strategy of purchasing on buy signals and selling on subsequent sell signals with a strategy of shorting on sell signals and covering on buy signals, what is her gain and loss as of January 2005?

 

4. If Baldwin buys 100 shares of stock in January 2000 and holds them for the entire period, what is her gain or loss as of January 2005?

 

5. If Baldwin follows a share-averaging strategy of buying 100 shares every January and July, what is her gain or loss as of January 2005?

 

6. If Baldwin follows a strategy of dollar cost averaging and buying $10,000 worth of the stock every January and July, what is her profit or loss as of January 2005?

 

7. What are the merits and risks associated with the preceding strategies?

 



MINI CASE

 



 

 

 

 

 

 

 

Christen Baldwin has a background in math and has recently read about the use of moving averages to forecast the direction of a stocks price. Ms. Baldwin is skeptical, so she has selected a stock to study the potential return from the strategy. Through a database, she obtained the following monthly closing prices of the stock. She then computed a six-month moving average and the difference between the stocks price and the moving average. From these data, she wants to compare the profit or loss from various investment strategies.

 

 







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