Identify the risk and the return in each of the following examples.a. Investing $500 in a certificate of deposit at 4.5% interest.b. Placing a $100 bet on an NBA game.c. Investing $10,000 in Microsoft stock.d. Borrowing $20,000 in student loans.
What will be an ideal response?
a. The risk involved is that the investor may need the money in the CD before the CD matures and would have to give up the interest. The return is the 4.5% interest on the $500 invested in the CD.
b. The risk is that the team bet on may not beat the point spread and the bet would be lost. The return would be any winnings based on the odds.
c. The risk is that the value of Microsoft stock could go down. The return would come from increase in the value of the stock.
d. The risk is that the student might not be able to find a job that pays enough to live on and allow for loan payments with interest. The return is that the student would be able to finance an education and earn higher wages.
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