Suppose that all investors have the disposition effect. A new stock has just been issued at a price of $70, so all investors in this stock purchased the stock today. A year from now the stock will be taken over, for a price of $84 or $56 depending on the news that comes out over the year. The stock will pay no dividends. Investors will sell the stock whenever the price goes up by more than 10%.

a. Suppose good news comes out in 6 months (implying the takeover offer will be $84). What equilibrium price will the stock trade for after the news comes out, that is, the price that

equates supply and demand?