Your neighbor asks you to invest $500 in her new business. you want to invest but are concerned because your neighbor has not had any business experience. how can you offset your risk?
a. ask for a high interest rate in exchange for the loan.
b. invest your $500 in a certificate of deposit.
c. use the $500 to open a savings account.
d. lend you neighbor the $500 and keep your fingers crossed.

My answer is A. ASK FOR A HIGH INTEREST RATE IN EXCHANGE FOR THE LOAN.

The venture is high risk, thus the need for high interest rate.  Principal amount will be collected faster if the interest earned on the loan is higher than normal.

Choices B and C offers no risk to you but it doesn't help your neighbor.
Choice D is not a sound business risk.

Secured loans are protected by collateral security. examples: title loans where the borrower uses the car title as collateral security interest rates are lower and repayments are longer therefore risk is low as a collateral security is given as guarantee to the bank in case of failure to pay the loanunsecured loans are not protected by collateral security but it is given on the creditworthiness of the borrower, trusting that she/he will pay on time. examples; payday loans is a short term loan where the borrower lends money from the bank and pays is back when the borrower receives his/her wages.interest rates are high and repayments are shorter. but the risk is high as no collateral security is given as a guarantee to the bank for payment of the loan