Question

A friend asks you to invest $500 at 5 percent interest in her business. you want to invest but are concerned because your friend has not had any business experience. how can you offset your risk?

O by investing your $500 in a certificate of deposit
O by lending your friend the $500 and keeping your fingers crossed
O by asking for a higher interest rate
O by using the $500 to open a savings account

Answer 1

One option to offset your risk is to invest in a certificate of deposit (CD), which offers a higher interest rate and a predetermined maturity date. This option provides a more secure and guaranteed return on your investment compared to lending money or opening a regular savings account.

Step-by-step explanation:

If you want to offset your risk when investing $500 at 5 percent interest in your friend's business, one option is to invest your $500 in a certificate of deposit (CD). With a CD, you deposit a certain amount of money for a specified period of time, and the bank agrees to pay a higher interest rate than a regular savings account. This can provide you with a more secure and guaranteed return on your investment.

By investing in a certificate of deposit, you can mitigate the risk associated with your friend's lack of business experience, as your investment is not directly tied to the success of her business. Additionally, a CD offers a higher interest rate compared to a regular savings account, providing you with a potentially higher return on your investment.

Investing in a certificate of deposit can be a safer option than lending your friend the $500 or opening a regular savings account, as it provides you with a fixed interest rate and a predetermined maturity date.