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How will the share price change

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Question - Zycor stock is worth either $ 100 per share, $ 80 per share or $ 60 per share. Investors believe that each case is equally likely and the current share price is equal to the average value of |$ 80.

Suppose the CEO of Zycor announces that he will sell most of his holdings of the stock to diversify. Diversifying is worth ten percent of the share price - that is, the CEO would be willing to receive 10% less than the shares are worth in order to achieve the benefit of diversification.

If investors believe the CEO knows the true value, how will the share price change if he tries to sell? Will the CEO sell at the new share price?

Reference no: EM132527614

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