A) Set up a spreadsheet to calculate the 26-week moving average of the index. No

Question

A) Set up a spreadsheet to calculate the 26-week moving average of the index.

Note: In order to create the 26-week moving average for the S&P 500, convert the weekly returns to weekly index values using a base of 100 for the week prior to the first week of the data set. Set the value of the index at the beginning of the sample period equal to 100. The index value in each week is then updated by multiplying the previous week's level by (1+rate of return over previous week). Then, graph the resulting S&P 500 values and the 26-week moving average, beginning with the 26th week of the data set. Use Excel's Chart Wizard and save the chart to a new page.

0.41

Week of S&P 500 Index S&P 500 Return S&P 500 Index Value Moving Average 4/29/05

0.41

4/22/05 0.83 4/15/05 -3.27 4/8/05 0.71 4/1/05 0.13 3/24/05 -1.53 3/18/05 -0.87 3/11/05 -1.80 3/4/05 0.89 2/25/05 0.81 2/18/05 -0.31 2/11/05 0.19 2/4/05 2.70 1/28/05 0.30 1/21/05 -1.41 1/14/05 -0.14 1/7/05 -2.12 12/31/04 0.15 12/23/04 1.33 12/17/04 0.52 12/10/04 -0.27 12/3/04 0.72

Explanation / Answer

A Moving Average is an indicator that shows the average value of a security's price over a period of time. When calculating a moving average, a mathematical analysis of the security's average value over a predetermined time period is made. As the security's price changes, its average price moves up or down.

There are five popular types of moving averages: simple (also referred to as arithmetic), exponential, triangular, variable, and weighted. Moving averages can be calculated on any data series including a security's open, high, low, close, volume, or another indicator. A moving average of another moving average is also common.

The only significant difference between the various types of moving averages is the weight assigned to the most recent data. Simple moving averages apply equal weight to the prices. Exponential and weighted averages apply more weight to recent prices. Triangular averages apply more weight to prices in the middle of the time period. And variable moving averages change the weighting based on the volatility of prices.

Week of S&P 500 Index S&P 500 Return S&P 500 Index Value Moving Average 4/29/2005 0.41 0% 100.00 0.0041 4/22/2005 0.83 102% 202.44 0.825 4/15/2005 -3.27 -494% -797.56 -1.09 4/8/2005 0.71 -122% 173.17 0.236667 4/1/2005 0.13 -82% 31.71 0.043333 3/24/2005 -1.53 -1277% -373.17 -0.255 3/18/2005 -0.87 -43% -212.20 -0.145 3/11/2005 -1.8 107% -439.02 -0.3 3/4/2005 0.89 -149% 217.07 0.148333 2/25/2005 0.81 -9% 197.56 0.135 2/18/2005 -0.31 -138% -75.61 -0.05167 2/11/2005 0.19 -161% 46.34 0.031667 2/4/2005 2.7 1321% 658.54 0.45 1/28/2005 0.3 -89% 73.17 0.05 1/21/2005 -1.41 -570% -343.90 -0.235 1/14/2005 -0.14 -90% -34.15 -0.02333 1/7/2005 -2.12 1414% -517.07 -0.35333 12/31/2004 0.15 -107% 36.59 0.025 12/23/2004 1.33 787% 324.39 0.221667 12/17/2004 0.52 -61% 126.83 0.086667 12/10/2004 -0.27 -152% -65.85 -0.045 12/3/2004 0.72 -367% 175.61 0.12

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