What type of investment does Nathan's purchase of a CD represent?

Nathan's purchase of a Certificate of Deposit (CD) represents an investment by loaning funds. When an investor buys a CD, they are essentially lending money to a financial institution, such as a bank, for a fixed period at a predetermined interest rate. In return for this loan, the investor earns interest on their funds over the term of the CD.

This investment format is characterized by its low risk, as CDs are typically insured by government agencies up to certain limits, making them a safe vehicle for preserving capital while earning a modest return. The funds deposited in the CD are not immediately accessible to the investor until the maturity date, which is a defining feature of this type of investment.

While other types of investments, like equity investments or real estate investments, involve ownership and risk to varying degrees, a CD is distinct in that it represents a direct loan agreement, with the investor receiving interest as compensation for locking up their funds for a specific time period.