Principles of Finance
Date
2025
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Abstract
Chapter 1 introduces finance as both an art and a science, focusing on money management,
financial institutions, markets, and instruments, and distinguishing finance from accounting
by emphasizing its role in increasing owner wealth. Chapter 2 elaborates on the time value
of money, presenting techniques for calculating future and present values of single amounts
and various annuities, as well as methods for determining unknown variables in cash flow
streams. Chapter 3 delves into the valuation of long-term securities, specifically bonds and
stocks, explaining their features, valuation processes, and the calculation of expected rates
of return and yield to maturity. Chapter 4 explores the fundamental concepts of risk and
return, covering the quantification of expected returns and risk using probability distributions,
risk measurement for individual assets and portfolios, the impact of diversification, and the
Capital Asset Pricing Model (CAPM). Chapter 5 focuses on capital budgeting methodologies,
discussing the challenges of identifying profitable projects and outlining various evaluation
techniques such as payback period, Net Present Value (NPV), Average Accounting Rate of
Return, and Internal Rate of Return (IRR), while also highlighting ethical considerations.
Finally, Chapter 6 provides an overview of different sources of finance available to
businesses, including common stock, retained earnings, various forms of debt, and
other financing options, detailing their characteristics, suitability, advantages, and
disadvantages.