Calculation Of True Share Price For Diversification

Question

GeKay stock is worth $100, or $80, or $60. Investors believe that each case is equally likely so that the current share price is the average, namely $80.  

Suppose Mr. Satanak, the company CEO, announces that he will sell most of his holdings of the stock to diversify (and investors believe his motivation). Diversifying is known to be worth 10% of the share price – that is, the CEO would be willing to receive up to 10% less than the shares are worth to achieve the benefits of diversification.

If he actually goes ahead and sells, what must be the true share price? Explain briefly but clearly and concisely using complete sentences.

Summary

The question belongs to Finance and it discusses about a CEO who announces that he will sell most of his holdings of the company to diversify the stock. The true share price needs to be calculated.

Total Word Count 36

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