Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A big pharmaceutical company, DRIg, has just announced a potential cure for cancer. The stock price increased from $4 to $150 in one day. A

A big pharmaceutical company, DRIg, has just announced a potential cure for cancer. The stock price increased from $4 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 2% quoted as an APR based on a 365-day year. DRIg made up 1.27% of the market portfolio before the news announcement. a. On the announcement your overall wealth went up by 0.9% (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 2.4%. How is his wealth invested

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Investment Code Ancient Jewish Wisdom For The Wise Investor

Authors: H. W. Charles

1st Edition

1533423466, 978-1533423467

More Books

Students also viewed these Finance questions

Question

' Which areas depend on inputs from you to get their work donel>

Answered: 1 week ago