Question

In a(n) _______ moving average, all days are given equal weighting, while in a(n) _______ moving average, more weight is given to the most recently observed price.

a. Simple; Exponential
b. Exponential; Weighted
c. Weighted; Simple
d. Exponential; Simple

Answer 1

The correct answer to the question is 'a. Simple; Exponential.' The simple moving average assigns equal weight to all periods, whereas the exponential moving average emphasizes recent prices more heavily.

Step-by-step explanation:

In a simple moving average, all days are given equal weighting, while in a exponential moving average, more weight is given to the most recently observed price. Therefore, the correct answer is a. Simple; Exponential.

Moving averages are used in stock market analysis to help smooth out price data and identify the direction of a trend. The simple moving average (SMA) calculates the average of a selected range of prices, typically closing prices, by the number of periods in that range. The exponential moving average (EMA), on the other hand, places a greater weight and significance on the most recent data points. The EMA is more responsive to new information compared to the SMA.

When analyzing broad stock market measures like the S&P 500 Index and the Dow Jones Industrial Average, moving averages can help investors understand the general direction of the market and make investment decisions.