Which statement best describes the six principles of finance?
A) Money has a time value; Higher returns are expected for taking on more risk; Diversification of investments does not impact risk; Financial markets are efficient in pricing securities; Manager and stockholder objectives may differ; Reputation matters.
B) Money has a time value; Higher returns are expected for taking on more risk; Diversification of investments can reduce risk; Financial markets are efficient in pricing securities; Manager and stockholder objectives may differ; Reputation matters.
C) Money has a time value; Higher returns are expected for taking on more risk; Diversification of investments can reduce risk; Financial markets are inefficient in pricing securities; Manager and stockholder objectives may differ; Reputation matters.
D) Money has a time value; Higher returns are expected for taking on more risk; Diversification of investments can reduce risk; Financial markets are efficient in pricing securities; Manager and stockholder objectives may differ; Reputation doesn't matter.

Question

Quizplus · Accepted Answer

Option B correctly describes the six principles of finance. Money has a time value means that a dollar received today is worth more than a dollar received in the future. Higher returns are expected for taking on more risk means that investments with higher return potential also have a higher risk. Diversification of investments can reduce risk means that by investing in a variety of assets, an investor can reduce their overall risk. Financial markets are efficient in pricing securities means that securities are fairly priced based on all available information. Manager and stockholder objectives may differ means that managers may prioritize different goals than shareholders. Reputation matters means that a firm's reputation can impact its financial performance.

Which Statement Best Describes the Six Principles of Finance