A big pharmaceutical company, DRIg, has just announced a potential cure for cancer. The stock price increased from $5 to $138 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 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 that without 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?
A big pharmaceutical company, DRIg, has just announced a potential cure for cancer. The stock price increased from $5 to $138 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 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 that without 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?
Chapter14: Property Transact Ions: Capital Gains And Losses, § 1231, And Recapture Provisions
Section: Chapter Questions
Problem 43P
Related questions
Question
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 7 images
Recommended textbooks for you