Final answer:
CDs yield a lower return than commercial paper due to their lower risk profile, providing more security for investors who prioritize safety of capital. While stocks and corporate bonds may offer higher returns, they also carry more risk, leading to a balance between potential rewards and acceptable levels of risk.
Step-by-step explanation:
CDs often yield a lower return than commercial paper because they are less risky.
Investors who prioritize safety of capital might prefer CDs because they offer more security with a fixed interest rate and are insured up to a certain amount by government entities like the FDIC in the United States. On the other hand, commercial paper is typically issued by corporations and can offer a higher yield as compensation for the higher risk associated with corporate debt.
It is important to consider the tradeoff between risk and reward when choosing investment options. While stocks and corporate bonds may offer a higher potential return, they come with increased volatility compared to CDs and Treasury bonds. This consideration must align with the investor's goals, risk tolerance, and time horizon.