Storing a bottle of wine has an expected payoff of $2,000 in one year. After that, the wine goes bad and is worth nothing. Furthermore, the wine payoff has a beta of 1.5. The expected return on the market portfolio is 15 percent, and the risk-free rate is 5 percent. On the other hand, playing poker with a particular friend once each year has an expected annual payoff of $200 that remains constant through time with a beta of 1.5. Furthermore, the difference between the actual and expected cash flows is not correlated from one period to the next (like a series of coin flips, the uncertainty is just one-period ahead).

A. What is the risk-adjusted present value of the bottle of wine? Please explain your answer.

B. What is the risk-adjusted present value of your poker playing assuming that its cash flows go on forever and that the market and risk-free rates remain unchanged. Which investment (A) or (B) has the higher NPV?