Consider the price paths of the following two stocks over six time periods:

1 2 3 4 5 6 Stock 1 8 10 12 10 11 14 Stock 2 15 11 8 16 15 18 Neither stock pays dividends. Assume you are an investor with the disposition effect and you bought at time 1 and right now it is time 3. Assume throughout this question that you do no trading (other than what is specified) in these stocks.

a. Which stock(s) would you be inclined to sell? Which would you be inclined 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 is time 6?

d. What if you bought at time 3 instead of 1 and today is time 5?

AppendixLO1