Consider the price paths of the following two stocks over six time periods:
|
|
1
|
2
|
3
|
4
|
5
|
6
|
|
Stock 1
|
10
|
12
|
14
|
12
|
13
|
16
|
|
Stock 2
|
15
|
11
|
8
|
16
|
15
|
18
|
Neither stock pays dividends. Suppose you are an investor with the disposition consequence and you bought at time 1 and right now it is time 3. Suppose during this problem that you do no trading (other than what is specified) in these stocks.
a. Which stock(s) would you is inclined to sell? Which would you is persuaded to hold on to?
b. How would your answer change if right now is time 6?
c. What if you bought at time 3 instead of 1 and today are time 6?
d. What if you bought at time 3 instead of 1 and today are time 5?