BA 301 SG 1

BA 301 SG 1 - BA 301 Finance EX 1 Study Guide F inancial...

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BA 301: Finance EX 1 Study Guide Financial Fact of the Day 1. There’s a recurrence of crises 2. Overinvestment in particular areas happen 3. Easy money to invest 4. Someone bails them out to save them Chapter 1 The Ten Principles of Finance Principle: A basic truth, law or assumption: the principles of democracy. 1. RETURN VS. RISK: H IGHER RETURNS REQUIRE TAKING MORE RISK a. Assumes that a rational investor prefers to receive a higher percentage return on an investment to a lower return, and would rather accept less risk than more risk in earning that return. b. Safe investments have low returns. High returns require investors to take big risks. Shows the direct relationship between return of an asset and the risk associated with receiving that return. Demonstrates the direct trade-off between return and risk. An investment in a Treasury bill (govt. insures them) with no default risk and very little price volatility has a lower expected average return (3.7%) than a portfolio of large cap stocks (10.4%)
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This note was uploaded on 09/16/2009 for the course B A 301 taught by Professor Gray,garyjosephwoolridge,joseph during the Fall '07 term at Penn State.

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BA 301 SG 1 - BA 301 Finance EX 1 Study Guide F inancial...

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