Which financial instrument is generally considered the least risky?

The correct answer highlights that a Certificate of Deposit (CD) is generally viewed as the least risky financial instrument among the choices provided. CDs are time deposits offered by banks or credit unions, where individuals deposit money for a set period of time at a fixed interest rate. Because they are insured by the FDIC (up to certain limits), they provide a guaranteed return on investment without the risk of losing the principal amount, as long as the money is kept in the account for the agreed duration.

Compared to stocks, which can be highly volatile and subject to market fluctuations, a CD offers stability and assurance. While mutual funds can diversify investments, they still carry some market risk as the underlying assets can vary in value. Bonds, while typically considered safer than stocks, may still be subject to interest rate risk and credit risk depending on the issuer. Therefore, the structure, fixed nature, and insurance aspect of CDs contribute to their classification as the least risky option in this context.