First, the principle of behavior.
Second, the value principle.
Three. Principles of financial transactions
First, the principle of behavior.
1, self-interest principle
People act according to their own financial interests: for financial transactions, all institutions will choose the behavior that is most beneficial to their own economy.
Application:
There is no free lunch.
Agency problem (death of chairman of western oil company)
Opportunity cost
2. The principle of transaction between the two parties
Every financial transaction has at least two parties.
Application:
There is no arbitrage opportunity
Don't take me as the center when making financial decisions.
Don't laugh at the market
Sun Company Acquires Apple Computer Company
3, the principle of signal transmission
Actions convey information: actions are more convincing than words.
Application:
Infer financial information that cannot be directly observed through actual behavior
Inverse selection
4. Imitation principle
Learn from other people's behavior.
Application:
When the theory can't provide the best scheme (the choice of capital structure)
When the information cost is too high (asset evaluation)
Follow the village freely (follow the strategy)
Second, the value principle.
1, present value principle
Time value of money (timeliness)-Money with the same face value at different times is not equivalent.
Cash gains realized at different times cannot be simply added up.
The value of an asset is equal to the sum of the present value of its expected future cash income.
The source of time value (very important)
Human nature is impatient-giving up current consumption must be compensated by more consumption in the future.
Investment Opportunity-Currency Appreciation in Flow
On Birds-"A bird in the hand is worth two in the bush"
inflation
Example: One-cycle problem
A company is considering selling a piece of real estate. A willing to bid 1 10,000; B is willing to bid 1 150000, but pay after one year.
The company can deposit cash in the bank with the interest rate of 10%.
The final value 1 ten thousand = (1+10%)100 =1ten thousand.
Present value115000 =115/(1+10%) =104.55.
Conclusion: Accept B's bid.