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?

Question

by using the $500 to open a savings account

by lending your friend the $500 and keeping your fingers crossed

by asking for a higher interest rate

by investing your $500 in a certificate of deposit

Answer 1

To offset your risk, the best approach among the options provided would be by asking for a higher interest rate.

This option allows you to compensate for the potential higher risk of investing in a business with no prior experience. A higher interest rate would provide you with greater returns that can help offset any potential losses if the business does not succeed.

Other options like opening a savings account or a certificate of deposit would involve a lower return on investment and wouldn't support your friend's business venture. Lending the money without any further arrangements (like a higher interest rate) is risky, especially given your friend's lack of experience.

Overall, seeking a higher interest rate provides a way to manage your investment risk while still supporting your friend's business.