1.Pelican Point Financial Group's clientele consists of two types of investors. The first type of investor makes many transactions in a given year and has a net worth of over $1 million. These investors seek unlimited access to investment consultants and are willing to pay up to $10,000 annually for no feebased transactions, or alternatively, $25 per trade. The other type of investor also has a net worth of over $1 million but makes few transactions each year and therefore is willing to pay $100 per trade. As the manager of Pelican Point Financial Group, you are unable to determine whether any given individual is a high- or low-volume transaction investor. Design a self-selection mechanism that permits you to identify each type of investor.

2.. You are considering a $500,000 investment in the fast-food industry and have narrowed your choice to either a McDonald's or a Penn Station East Coast Subs franchise. McDonald's indicates that, based on the location where you are proposing to open a new restaurant, there is a 25 percent probability that aggregate 10-year profits (net of the initial investment) will be $10 million, a 50 percent probability that profits will be $5 million, and a 25 percent probability that profits will be $1 million. The aggregate 10-year profit projections (net of the initial investment) for a Penn Station East Coast Subs franchise is $30 million with a 2.5 percent probability, $5 million with a 95 percent probability, and $30 million with a 2.5 percent probability. Considering both the risk and expected profitability of these two investment opportunities, which is the better investment? Explain carefully