The Six Principles of Finance Include All of the Following

question 33

Multiple Choice

The six principles of finance include all of the following except:

• A) Money has a time value.
• B) Higher returns are expected for taking on more risk
• C) Diversification of investments can reduce risk
• D) Larger capital amounts are charged higher interest

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Definitions:

Compounded Annually

This refers to the process of calculating interest on an investment or loan on a yearly basis, where interest from one year is added to the principal for calculation of interest in the next year.

Present Value

The current value of a future sum of money or stream of cash flows, given a specified rate of return.

Compounded Quarterly

The process of calculating interest on both the initial principal and the accumulated interest of previous periods on a quarterly basis.

Compound Interest

The interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods.