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The six principles of finance include (1) Money has a time value, (2) Higher returns are
expected for taking on more risk, (3) Diversification of investments can reduce risk, (4)
Financial markets are efficient in pricing securities, (5) Manager and stockholder
objectives may differ, and (6) Reputation matters.
Open market operations involve the buying and selling of U.S. government securities.
The present value of a $100 deposit in 10 years at 10% is $259.
The federal funds rate is normally several points lower than the Treasury Bill rate.
Money has a time value so long as interest is earned by saving or investing money.
Under a best-effort agreement, investment bankers try to sell the securities of the
issuing corporation, but they assume no risk for a possible failure of the flotation.
Financial markets provide the mechanism for allocating financial resources or funds
from savers to borrowers
The only relevant risk for investors that hold diversified portfolios of securities is
nondiversifiable risk.
