INDIVIDUAL ASSIGNMENT

Mr$.$ Boniventure owns stock in XYZ Corporation. He is a fairly astute investor and

has recently discovered some new information about XYZ$.$ His task is to evaluate

this information for the purpose of deciding whether she should increase,

decrease, or simply maintain his holdings in XYZ$.$ Mr$.$ Boniventure bought stock in

XYZ two years ago at TZS $12,000$ and the stock is now TZS $15,000.$ Several

months ago, XYZ reached TZS $20,000$ after a surprise announcement of higher

than expected earnings, at which time Mr$.$ Boniventure contemplated selling the

stock but did not. Unfortunately, XYZ then dropped to TZS $15,000$ after

executives were accused of faulty accounting practices. Today, Mr$.$ Boniventure

feels as though she has $$lost$25$ percent of the stock$$s value, and he would prefer

to wait and sell her shares in XYZ once it returns to its recent TZS $20,000$ high.

Mr$.$ Boniventure has a background in accounting, and she does some research that

leads him to conclude that XYZ$$s methods are indeed faulty, but not extremely so$.$

However, Mr$.$ Boniventure cannot entirely gauge the depth of the problem and

realises that holding XYZ contains risk, but XYZ is also a viable corporate entity

with good prospects. Mr$.$ Boniventure must make a decision. On one hand, he has

confirmed that XYZ does have an accounting problem, and he is unsure of how

severe the problem might become. On the other hand, the company has a solid

business, and Mr$.$ Boniventure wants to recoup the $25$ percent that he feels he lost.

REQUIRED:

a$)$ Describe the psychological bias that Mr$.$ Boniventure is susceptible.

b$)$ Explain what Mr$.$ Boniventure should do$.$