10 Principles of Finance

Topics: Finance, Economics, Investment Pages: 2 (382 words) Published: June 25, 2012
According to Emery, Finnerty, and Stowe (2007) the 12 Principles of Finance are divided into three groups that include: Group 1 Competition in Economic environment
A.The Principle of Self-Interested Behavior: Theory suggests people behave in a mannerism that is most beneficial for them. B. The Principle of Two-Sided Transactions: Theory suggests there are two perspectives or positions in every situation. C. The Signaling Principle: Theory suggests people make assumptions based on actions at times their thoughts may be incorrect; words and actions are two different things. D.The Behavioral Principle: Theory is supportive of Bandura’s Modeling theory which suggests people learn through observation. Group 2 Creating Value & Economic Efficiency

E.The Principle of Valuable Ideas: Theory suggests in effort to be the next big thing you must be able to create or develop a new product resulting in a large pay-off. F. The Principle of Comparative Advantage: Theory suggests that in efforts to obtain economic efficiency it is essential that people are working in areas or fields in which they are best at. G.The options Principle: Theory suggests in market place they are alternatives that include the right to buy or sell. H.The Principle of Incremental Benefits: Theory suggests decisions should include specific courses of actions that could have a positive or Group 3 Observing Financial Transactions

I.The Principle of Risk-Return Trade-Off: Theory suggests when taking risk a person is more likely inclined to choose an alternative that has a higher return; whereas, when the return is the same, the person is more likely to choose an alternative that offers less risk. J.The Principle of Diversification: Theory suggests investing in multiple firms minimizes total loss that could occur when investing in only one firm. K.The Principle of Capital Market Efficiency: Theory suggests that new information disclosed to traders influences stock market trading prices and...
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