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How is your wealth invested

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Question - A big pharmaceutical? company, DRIg, has just announced a potential cure for cancer. The stock price increased from $2 to $150 in one day. A friend calls to tell you that he owns DRIg. You proudly reply that you? do, too. Since you have been friends for some? time, you know that he holds the? market, as do? you, and so you both are invested in this stock. Both of you care only about expected return and volatility. The? risk-free rate is 4%?, quoted as an APR based on a? 365-day year. DRIg made up 0.35% of the market portfolio before the news announcement.

a. On the announcement your overall wealth went up by 1.3% ?(assume all other price changes cancelled out so that without? DRIg, the market return would have been?zero). How is your wealth invested? 

b. Your? friend's wealth went up by 1.8%. How is his wealth invested?

Reference no: EM132990689

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