On November 22,1991 the stock price of K-Mart was $39.50 and the retailer stock index was 600.30.On November 25,1991 the stock price of K-mart was $40.25 and the retailer stock index was 605.20.Consider the ratio of K-Mart to the retailer index at November 22 and November 25.K-Mart is _______ the retail industry and technical analysts who follow relative strength would advise _______ the stock.

Question

Quizplus · Accepted Answer

To find the ratio of K-Mart to the retailer index, we can divide the stock price of K-Mart by the retailer stock index at each date:

Ratio on November 22 = $39.50 / 600.30 = 0.0658
Ratio on November 25 = $40.25 / 605.20 = 0.0665

Since the ratio increased from 0.0658 to 0.0665, K-Mart is outperforming the retail industry. This suggests that K-Mart stock is a good investment relative to other retail stocks, so technical analysts who follow relative strength would advise buying the stock. Therefore, the correct answer is A) outperforming, buying.

On November 22,1991 the Stock Price of K-Mart Was $39