A big pharmaceutical company, DRIg, has just announced a potential cure for cancer. The stock price increased from $5to $138 in one day. A friend calls to tell you that he owns DRIg. You proudly reply that you do, too. Since you have beenfriends for some time, you know that he holds the market, as do you, and so you both are invested in this stock. Both ofyou care only about expected return and volatility. The risk-free rate is 3%, quoted as an APR based on a 365-day year.DRIg made up 0.82% of the market portfolio before the news announcement.a. On the announcement your overall wealth went up by 1.4% (assume all other price changes cancelled out so thatwithout DRIg, the market return would have been zero). How is your wealth invested?b. Your friend's wealth went up by 2.5%. How is his wealth invested?

In one day,The stock price increased from $5 to $138 andThe risk-free rate is 3% and Drig made up…

Answered: A big pharmaceutical company, DRIg, has…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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