Leticia is twenty-two years old and she has all of her savings in a Certificate of Deposit (CD)at the bank that currently pays an annual 1.5 percent yield.The account is protected by the FDIC so it is virtually risk free.She hopes to use her savings for a down payment on a new house in ten years.Inflation in house prices in her area has averaged 4 percent per year.What financial principle does she need to pay better attention to?

Question

Quizplus · Accepted Answer

Leticia needs to pay better attention to the financial principle of risk and return. While her CD may be virtually risk-free, the 1.5 percent yield may not keep up with inflation in house prices, which has averaged 4 percent per year in her area. She may need to consider higher-yielding investments with potentially higher risk in order to reach her goal of saving for a down payment on a new house in ten years.

Leticia Is Twenty-Two Years Old and She Has All of Her