Even if your business interest is in a non-finance career or professional activity, you likely will need to interact with finance professionals both within and outside your firm or organization. Doing so will require a basic knowledge of the concepts, tools, and applications of financial management. They must focus on providing an understanding of how finance is applied within a firm by focusing on decision making by financial managers. A fourth finance-related aspect of economic behavior is that individuals seek to find undervalued and overvalued investment opportunities involving both real and financial assets.

It is human nature, economically speaking, to search for investment opportunities that will provide returns higher than those expected for undertaking a specified level of risk. This attempt by many to earn excess returns, or to “beat the market,” leads to information efficient financial markets. However, at the same time it becomes almost impossible to consistently earn returns higher than those expected in a risk/return trade-off framework. Rather than looking at this third pillar of finance as a negative consequence of human economic behavior, we prefer to couch it positively in that it leads to information-efficient financial markets.

it is also possible that one investment would go broke and the other would return $1,200. So, four outcomes are now possible.