An informed trader has private information that the value of a stock is $100 per share. Without this information, the variance of payoffs on the stock would be 100; this is the level of payoff uncertainty faced by uninformed investors. The variance associated with uninformed investor trade is 10,000 shares. If the value of the stock were to be $ 91 without the private information, what would be the level of informed trader demand for the stock?

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 3P
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An informed trader has private information that
the value of a stock is $100 per share. Without this
information, the variance of payoffs on the stock
would be 100; this is the level of payoff uncertainty
faced by uninformed investors. The variance
associated with uninformed investor trade is
10,000 shares. If the value of the stock were to be $
91 without the private information, what would be
the level of informed trader demand for the stock?
Transcribed Image Text:An informed trader has private information that the value of a stock is $100 per share. Without this information, the variance of payoffs on the stock would be 100; this is the level of payoff uncertainty faced by uninformed investors. The variance associated with uninformed investor trade is 10,000 shares. If the value of the stock were to be $ 91 without the private information, what would be the level of informed trader demand for the stock?
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