Question
Leia is a risk-averse investor who owns shares in several different companies. Leia considers herself a very informed investor. She regularly reads online articles about
Leia is a risk-averse investor who owns shares in several different companies. Leia considers herself a very informed investor. She regularly reads online articles about investing, she has taken some online investing courses, and follows the news and reads the annual reports for any company that she invests in.
Several months ago, Leia invested in shares of Alderaan Ltd. at a price of $25 per share. Last week, on November 4, the shares in Alderaan Ltd. were trading at $92.50 per share. The company's annual report was due to be released on November 15. Leia read some articles online discussing the company. Several of the articles predicted that disappointing results would be published in the upcoming annual report, but two or three other articles predicted that the company would meet and possibly exceed the previously published profit forecasts. After reading the articles, Leia decided not to sell her shares in Alderaan until after the annual report was published.
Alderaan's annual report was released today (on November 15). The company reported a much lower net income than previously expected, and the price of the Alderaan Ltd. shares dropped to $83.90 per share. Leia commented to her brother Luke, "I'm so disappointed in the company, but I can't sell my shares, now. I'd lose too much money if I sold now."
Using accounting theory concepts, explain Leia's behavior and her comment to her brother.
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