principal

Examples of principal in the following topics:

• Principle-Agent Problem

  • In economics, the principal-agent problem (also known as an agency dilemma) exists when conflicts of interest arise between a principal and an agent in a business setting .
  • The principal hires the agent to perform specific to duties that represent its best interest.
  • Examples of relationships that can experience the principal-agent problem include:
  • Principals offer various incentive structures, which are rewards or motivating factors that drive the agent to work in the best interest of the principal and complete tasks efficiently.
  • For the principal, agent inefficiency results in sub-optimal results and low welfare.

• Loans and Loan Amortization

  • When paying off a debt, a portion of each payment is for interest while the remaining amount is applied towards the principal balance and amortized.
  • In order to pay off a loan, the debtor must pay off not only the principal but also the interest.
  • Since interest accrues on both the principal and previously accrued interest, paying off a loan can seem like a dance between paying off the principal fast enough to reduce the amount of interest without having huge payments.
  • There is an incentive to paying off the loan ahead of schedule (lower total cost due to less accrued interest), but there is also a disincentive (less use of the principal).
  • A portion of each payment is for interest while the remaining amount is applied towards the principal balance.

• Agents

  • The agent may act for themselves or on the behalf of a principal.
  • This is referred to as the principal/agent problem.
  • The lawyer acts as an agent for her client, the principal.
  • The principal must have some knowledge and information regarding the agent's behavior.
  • Enron is an example of the principal/agent problem.

• Defining Agency Conflicts

  • Agency conflicts can occur when the incentives of the agent do not align with those of the principal.
  • The principal–agent problem or agency dilemma, developed in economic theory, concerns the difficulties in motivating one party (the "agent"), to act on behalf of another (the "principal").
  • The two parties have different interests and asymmetric information (the agent having more information), such that the principal cannot directly ensure that the agents are always acting in its (the principals') best interests, particularly when activities that are useful to the principal are costly to the agent, and where elements of what the agent does are costly for the principal to observe.
  • Examples of agency costs include that borne by shareholders (the principal), when corporate management (the agent) buys other companies to expand its power instead of maximizing the value of the corporation's worth; or by the constituents of a politician's district (the principal) when the politician (the agent) passes legislation helpful to large contributors to their campaign rather than helpful to voters.
  • Principal-agent problems - which arise when managers act on the behalf of a firm and its investors - include potential conflicts of interest.

• Accounting for Interest Earned and Principal at Maturity

  • At maturity, firms should debit cash and credit held to maturity investments the balance of the principal payment.
  • When money is borrowed, interest is typically paid to the lender as a percentage of the principal, the amount owed to the lender.
  • The percentage of the principal that is paid as a fee over a certain period of time (typically one month or year) is called the interest rate.
  • Nominal, principal, par, or face amount —is the amount on which the issuer pays interest, and which, most commonly, has to be repaid at the end of the term.
  • If a company paid $10,000 for 8% bonds, a journal entry is required to record the payment of principal at maturity.

• Conclusion

  • Cognitive development is a complex process comprising three principal concepts affecting the development process: assimilation, accommodation and equilibration.

• Shuttle Diplomacy

  • Shuttle diplomacy is the action of a thrid party in serving as an intermediary between principals in a dispute.
  • In diplomacy and international relations, shuttle diplomacy is the action of a thrid party in serving as an intermediary between principals in a dispute, without direct principal-to-principal contact.
  • Originally and usually, the process entails successive travel ("shuttling") by the intermediary, from the working location of one principal, to that of another.
  • Negotiators often use shuttle diplomacy when one or both of the two principals refuses to recognize the other.

• The Mongol Threat

  • The Mongol invasion of the Kievan Rus' principalities began in 1223 at the Battle of the Kalka River.
  • For the next three years the Mongol forces took over the major princely cities of Kievan Rus’ and finally forced most principalities to submit to foreign rule and taxation.
  • By the 12th century, after years of fighting amongst the princes, power was centered around smaller principalities.
  • All the major principalities, such as Novgorod, Smolensk, and Pskov, submitted to Mongol rule.
  • However, Rus’ principalities paid tribute and taxes to the Mongol rulers regularly, under the umbrella of the Golden Horde (the western portion of the Mongol Empire).

• Zero-Coupon Bonds

  • Zero-coupon bonds may be created from fixed rate bonds by a financial institution separating ("stripping off") the coupons from the principal.
  • In other words, the separated coupons and the final principal payment of the bond may be traded separately.
  • Investment banks or dealers separate coupons from the principal of coupon bonds, which is known as the "residue," so that different investors may receive the principal and each of the coupon payments.
  • "STRIPS" stands for Separate Trading of Registered Interest and Principal Securities.

• Multi-Period Investment

  • The first concept of accruing (or earning) interest is called "simple interest. " Simple interest means that you earn interest only on the principal.
  • Since simple interest is paid only on your principal ($100), you earn 5% of $100, not 5% of $105.
  • In simple interest, it is only how much the principal is that matters.
  • Simple interest earns you 5% of your principal each year, or $5 a year.
  • Simple interest is when interest is only paid on the amount you originally invested (the principal).