A big pharmaceuticalcompany, DRIg, has just announced a potential cure for cancer. The stock price increased from $4 to $83 in one day. A friend calls to tell you that he owns DRIg. You proudly reply that youdo, too. Since you have been friends for sometime, you know that he holds themarket, as doyou, and so you both are invested in this stock. Both of you care only about expected return and volatility. Therisk-free rate is 4%, quoted as an APR based on a365-day year. DRIg made up 1.88% of the market portfolio before the news announcement.

a. On the announcement your overall wealth went up by 1.1% (assume all other price changes cancelled out so that withoutDRIg, the market return would have beenzero). How is your wealthinvested?

b. Yourfriend's wealth went up by 2.3%. How is his wealthinvested?