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 $67). What equilibrium price will the stock trade for after the news comes out, that is, 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 not affect prices. Without knowing what will actually transpire, what trading strategy would you instruct your broker to follow?You work for Microsoft Corporation (ticker: MSFT), and you are considering whether to develop a new software product. The risk of the investment is the same as the risk of the company. A. Using the data in Table 1 shown here, and Table 2 shown here calculate the cost of capital using the FFC factor specification if the current risk-free rate is 2.6% per year. B. Microsoft's CAPM beta over the same period was 0.96. What cost of capital would you estimate using CAPM? The cost of capital using the CAPM is%. Table 1: Estimated Factor Betas, 2005-2015 Fctor MSFT XOM GE MKT 1.06 0.78 1.29SMB 0.45 0.62 0.39HML 0.09 0.21 0.82PR1YR 0.07 0.32 0.22 Table 2: FFC Portfolio Average Monthly Returns, 1927-2015 Factor Portfolio Average Monthly Return(%) 95% Confidence Band(%)MKT- rf 0.66 + 0.33SMB 0.23 + 0.19HML 0.39 + 0.21PR1YR 0.67 + 0.29