Business, 18.06.2020 16:57 zuleromanos

Suppose two local start-ups are raising funding by issuing shares of equity at $1,000 per share. One start-up is a whiskey distillery; the other is a beer brewery. You estimate the expected returns 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 with the brewery. Suppose you can choose only one investment, and that 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. 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?

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Suppose two local start-ups are raising funding by issuing shares of equity at $1,000 per share. One...

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