In which of the following situations would purchasing a savings bond be the best investment to earn interest?

• A. When you are seeking high returns in a short period through stock trading
• B. When you want to invest in assets with variable interest rates and potential for capital gains
• C. When you need immediate access to your funds for daily expenses
• D. When you want a low-risk investment with guaranteed interest over a fixed period

Answer: (D)

Verified step by step guidance

1. Understand the nature of a savings bond: A savings bond is a low-risk investment issued by the government, offering guaranteed interest over a fixed period. It is ideal for individuals seeking stability and security in their investments.
2. Analyze the options provided: Evaluate each scenario to determine whether it aligns with the characteristics of a savings bond. For example, high returns in a short period through stock trading involves significant risk and volatility, which is contrary to the low-risk nature of savings bonds.
3. Consider the variable interest rates and potential for capital gains: Investments with variable interest rates and capital gains, such as stocks or mutual funds, are not guaranteed and carry higher risk compared to savings bonds.
4. Evaluate the need for immediate access to funds: Savings bonds typically have a fixed maturity period, meaning they are not suitable for individuals who require liquidity for daily expenses.
5. Conclude that the best situation for purchasing a savings bond is when you want a low-risk investment with guaranteed interest over a fixed period, as this aligns perfectly with the characteristics of savings bonds.