Question

A group of friends pool their money to make an investment. Vita argues that she has previously earned a return of 7% on the stock market. What argument might Azhar give for investing in a CD with a 3% return instead? There is a good chance that the stock market investment will lose money. Keeping money in the CD will result in a 7% return in the long run. Investing in the CD is good for the economy because it helps the government. The CD could result in more money because it carries a higher risk.

Answer 1

Azhar might suggest investing in a CD for its lower risk and guaranteed returns, which might be more suitable for someone seeking to preserve capital and prioritize stability over the higher but volatile returns of the stock market. The correct answer is option There is a good chance that the stock market investment will lose money.

Step-by-step explanation:

Azhar could argue for investing in a Certificate of Deposit (CD) with a 3% return instead of the stock market by emphasizing that CDs offer lower risk compared to stocks. While Vita points out a 7% return from stock market investments, Azhar may highlight the tradeoff between expected return and degree of risk.

Stocks indeed offer a higher potential return over time but come with higher volatility and the possibility of losing money, especially in the short term. On the other hand, CDs provide more stability and guaranteed returns, albeit lower, which could be more suitable for someone seeking a low-risk investment.

In contrast to stocks, CDs are not designed to offer high returns but rather to preserve capital and provide a steady, albeit lower, income stream. Azhar's argument might underscore that for investors who prioritize preserving their initial investment over seeking high returns, a CD with a guaranteed interest rate and lower risk could be the preferred choice.