Table of ContentPage Number1.0 Introduction 3 1.1 Definitions 31.3Conceptual differences between RPI and CPI 41.4 Methodological differences 42.1RPI inflation graphs from 1987-2011 52.2Index calculation 62.3 Inflation graph from 1987 of Tobacco 83.1How they are being interpreted 94.1Correlation and other statistical measures 104.3Statistical interpretation and manipulation 12Bibliography 15Appendices 161.0Introduction1.1Business and financial analysisWhenever one is sick he needs to seek doctors assistance but not all doctors can assist you diagnose your problem. Each and every doctor has specific area of specialization hence you will be only able to be assisted with a specific doctor.
Likewise in business one needs to seek the assistance from the right person like an accountant, financial analyst or market and product analyst. For this purpose to be achieved there is need for accurate and reliable data to be collected before the required analysis to be done. The quality of a good data includes; Timely-up-to-date, Accurate and easy to understand, Fit for the purpose intended for and can be verifiable. Qualitative research is more details and more details compared to quantitative research work is merely comparison. 1.2Definitions Index can be defined as statistical measure of change in an economy or a securities market.
In the point of market, an index can be defined as imaginary portfolio of the securities representing a particular market or a portion of it. Different market has different index calculation methodology. 1.3Conceptual differences between RPI and CPIThe history of RPI began as compensation index and later developed to safe guard ordinary worker from increase in price was resulted from the world war. Only in later days RPI was used as the main elements for measuring the level of domestic inflation within the country. CPI was launched in the late 1996 and its main intention was to compare the measure of inflation using the internationally laid methodologist and structures.
In most cases CPI is the target by the government on the inflation rate. 1.4 Methodological differencesRPICPIIt covers both the actual goods and services in their indicesIt covers most of the cost which are excluded in the CPI, some include; Road fund licensesTV licenses Council licenses housing depreciation, Building insurance. mortgage interest paymentThe RPI includes a price index for cars which is based entirely on used car prices It normally covers some of the charges which are excluded in RPI and these include; University accommodation feesStock brokers feesUnit trust feesForeign student tuitionThe index for the purchase of new cars in the CPI is quality adjusted and based on actual published prices for new cars The population is based on the expenditure which are covered by indexes and some sources of data from the expenditureNormally represent the majority of the household who are private and excluded people with higher earning and pension household within the country and mostly depends on the state benefits. Expenditure data (or ‘weights’) used to represent this population are derived from a number of sources but mainly from ONS’s Living Costs and Food Survey It represents all the house hold and also institutional household. Expenditure data (or ‘weights’) used to represent this population are derived from National Accounts data and can therefore differ in magnitude from the RPI weights for similar components Index calculation formulaIn its initial state, RPI is calculated using arithmetic mean.
Two different methods are applied to two different items.
Eg. If one price increased by 25% from the base period (which=100) and another decreased by 20% their new index values would be 125 and 80 respectively. The AM of these is (125 +80)/2= 102.5. this show an average price increase of 2.5%In the same point, CPI normally uses geometrical mean, which takes the value of the adjacent, thus it is calculated as; 125*80= square root of1000= 100, indicating that there has been no change in prices. An advantageous property of the geometric mean is that it can better reflect changes in consumer spending patterns elative to changes in the price of goods and services 2.0PARTII2.1RPI inflation graphs from 1987-2011Fig. 1.02.2Index calculation Index calculationIndicesyearcashpercentage increase 25%Percentages decrease 20%110012580102.52.5297.5122.577.51002.53951207597.52.5Fig. 1.1 In the next three year I will need$ (2.5*3) in order to adjust for the inflation. 2.3 Inflation graph from 1987 of TobaccoFig. 1.23.0Topic threeMoving average usually is an indicator which shows the normal average value of the share prices over a given period of time.
When you are calculating the moving average of given shares in analysis you take the average divided by the given period of time.
With changes in prices, the average prices also continuously changes either upwards or downward. The moving averages are five in number, they include; arithmetic exponential, variable, triangular and weighted moving averages. The most significant different between the above moving averages is the weight assigned to them at different time intervals. 3.1How they are being interpretedOne of the easiest and simple ways to interpret the moving average of the share stock is by comparing the moving average prices by the share prices themselves. The relationship will give an investor hint on whether it should be sold or bought.
Example, when security or share prices is higher than the moving average then it signals a buy, that is when investor should buy the share at that point but when the share prices fall below the moving average then it signalizes a sell, , that is the security should be sold out (Lovell and Lawson, 1970).