The Six Principles of Finance Include (1)Money Has a Time

question 127

True/False

The six principles of finance include (1)Money has a time value,(2)Higher returns are expected for taking on less risk,(3)Diversification of investments can increase risk,(4)Financial markets are inefficient in pricing securities,(5)Manager and stockholder objectives may differ,and (6)Reputation matters.

---

Definitions:

Original Investment

The initial amount of money put into an investment or project, serving as the baseline for measuring future earnings or losses.

Nominal Interest Rate

The interest rate before adjustments for inflation, as opposed to the real interest rate.

Periodic Interest Rate

The interest rate applied to a loan or investment for a specific period, usually shorter than a year.

Compound-Interest GIC

A Compound-Interest Guaranteed Investment Certificate is a type of investment where the interest earned is reinvested, allowing the initial investment to grow at an exponential rate over time due to the compound interest effect.