Suppose Two local start-ups are raising funding by Issuing shares of equity at $1000 per share. One start-up is whiskey distillery and the other is a beer brewery. You estimate the expected return on your investment to be %50 in both cases. You also believe that the likelihood of being rewarded $10,000 per share in the next year is greater with the distillery than the brewery.

1. Suppose you can choose only one investment, and thus this would be your only investment. For example, assume you are an entrepreneur and that you would be invested 100% in only one of these start-ups.

Which investment do you prefer to make, the distillery or the brewery? Explain your logic. Vote that the usual assumptions apply, namely that you are risk averse, making optimal decisions, and the payoffs are normally distributed.

2. Suppose you hold a portfolio of many other risky assets, and that this would be your N + 1 investment. Then which investment do you prefer to make, the distillery or the brewery? Explain your logic. if you require additional information, identify that information is needed.