Question

When the price of a divided by the price of the preceding year, we, get:

• A. Value index
• B. Link relative
• C. Simple relative
• D. None of them

Answer 1

The correct option is B Link relative

$\Rightarrow$ When the price of divided by the price of the preceding year, we get : $Linkrelative.$

$\Rightarrow$ This method is based on the assumption that the trend is linear and cyclical variations are of uniform pattern.

$\Rightarrow$ The link relatives are percentages of the current period (quarter or month) as compared with the previous period. With the computations of the link relatives and their average, the effect of cyclical and the random components is minimized. Further, the trend gets eliminated in the process of adjustment of chain relatives

$\Rightarrow$ This method is less complicated than the ratio to moving average and the ratio to trend methods.However, this method is based upon the assumption of a linear trend which may not always hold true.