Suppose that all investors have the disposition effect. A new stock has just been issued ata price of $54, so all investors in thisstock purchased the stock today. A year from now the stock will be taken over, for a price of $65 or $43 depending on the newsthat comes out over the year. The stock will pay no dividends. Investors will sell the stock whenever the price goes up by morethan 10%. a. Suppose good news comes out in 6 months (implying the takeover offer will be S65). What equilibrium price will the stocktrade for after the news comes out, thatis, the price that equates supply and demand? b. Assume that you are the only investor that does not suffer from the disposition effect and your trades are small enough to notaffect prices. Without knowing what will actually transpire, what trading strategy would you instruct your broker to follow?

a. Suppose good news comes out in 6 months (implying the takeover offer will be $65). What equilibrium price will the stocktrade for after the news comes out, that is, the price that equates supply and demand?

The equilibrium price is $___.(Round to the nearest cent.)

b.Assume that you are the only investor that does not suffer from the disposition effect and your trades are small enough to not affect prices. Without knowing what will actually transpire, what trading strategy would you instruct your broker to follow? _______anytime the price goes up by_______10%