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?


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.