Constantine purchased 100 shares of IBM stock several years ago for $150 per share. The price of these shares has fallen to $55 per share. Constantine's investment strategy is "buy low, sell high"
Therefore, he will not sell his IBM stock until the price rises above $150 per share. If he sells at a price lower than $150 per share he will have "bought high and sold low." Constantine's decision: A) is correct and shows a solid command of the nature of opportunity cost.
B) is incorrect because the original price paid for the shares is a sunk cost and should have no bearing on whether the shares should be held or sold.
C) is incorrect because when the price of a stock falls, the law of demand states that he should buy more shares.
D) is incorrect because it treats the price of the shares as an explicit cost.
B
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