Question

1. Where might technical analysis be considered useful to​ investors?

A. It identifies changes in trends only after the fact B. Deviations from intrinsic values can persist for long periods C.It is useful for assets where there is scarce fundamental information

2.. Analyst forecasts which focus on a​ top-down approach to forecasting future performance are most likely paying attention​ to:

A.Signals from individual companies within an industry first B. Macroeconomic factors such as gross domestic product​ (GDP) C. Microeconomic factors such as dividend yields on​ bio-technology stocks​ (shares)

3.. A trader who relies on a relative value model is least likely looking for situations that​ involve:

A. Buying cheap assets and selling expensive assets. B.Identifying the best time to switch between stocks and bonds. C. Buying expensive assets and selling cheap assets

4. What would be the most likely reason for the price return of a​ market-capitalization index performing better compared to an​ equal-weighted index comprised of the same​ securities?

A. Small-cap securities outperforming​ large-cap securities B. ​Large-cap securities outperforming​ small-cap securities. C. Underperformance of​ large-cap securities.

5. Why is trading volume an important consideration when undertaking technical​ analysis?

A. Trading volume represents private information not incorporated in prices B. Trading volume can be used as a signal to support price and market trends C. Both are correct

Answer 1

Answer(1): Option "A" is correct that says, "It identifies changes in trends only after the fact".

Technical analysis- It is the analysis that predicts future prices based on historical data. It studie charts and patterns of an underlying security. That underlying can be shares, commodities, currencies, derivatives etc. Technical analysis is useful because market is not efficient. Technical analysis studies past data, facts and figures and then forecast the future trend of a security or overall market.

Answer(2): Option "B" is correct that says,"Macroeconomic factors such as gross domestic product​ (GDP)".

Top down approach is the approach of Fudamental analysis. It studies macro economics factors first then the micro economics factors. Top down approach analyses the biggest factors of the economy that are affecting the economy then it analyzes the industry and then the company specific analysis is done so from top to bottom analysis is called Top down approach.

Answer(3): Option "B" is correct that says, "Identifying the best time to switch between stocks and bonds".

Relative valuation mode- This model compares the financial health of the company to its peers in the same industry. It also compares the company's stock price as compare to other companies in the indutry. Example is Price to earning ratio.

Answer(4): Option "B" is correct that says, "Large-cap securities outperforming​ small-cap securities".

When price return of a market-capitalization index performing better than the equal weighted index comprised of the same securities, that means large cap stocks are performing better as compare to small cap stocks. In market capitalization index, large cap stocks are overpresented.

Answer(5): Option "B" is correct that says, "Trading volume can be used as a signal to support price and market trends".

Trading volume is used in technical analysis for predicting future prices and trend of the securities. Voulme and open interest use together to know the future price direction.