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Measuring Finance Majors\u27 Communications Abilities using AACSB Best Practices for AOL Processes
No full textAACSB accreditation of an undergraduate business degree program requires that the institution enumerate its learning goals and demonstrate the successful student’s attainment thereof. AACSB mandates that learning goals be both consistent with the institution’s mission statement and measurable. This study describes the AOL process for assuring oral and written communications abilities in the finance major curriculum. Among finance majors, the findings reveal an adequate level of oral communications skills but written communications skills below the appropriate level for the finance professional. The results reveal that lack of performance is a function of skill and not writing apprehension for this set of students
Using Fed Funds Futures to Predict a Federal Reserve Rate Hike
No full textThis paper demonstrates formulas used by market participants to predict the probability of an increase in the Fed Funds rate and suggests how these formulas can be used in the classroom. Utilizing Fed funds futures contracts, instructors can demonstrate how the market anticipates actions by the Federal Open Market Committee and can give assignments to students to have them calculate the probability of a rate change. This activity can enhance students’ understanding of financial markets, interest rates, and futures contracts and supply students with a useful tool to use in the business world
Yield to Maturity Is Always Received as Promised
No full textThis note comments on a misconception that yield to maturity from holding a coupon bond until maturity is only promised, but not really received, unless coupon payments are reinvested at the same rate as the (original) yield to maturity. It shows that yield to maturity is always earned no matter how coupon payments are allocated – spent or reinvested at any rate. It illuminates that the realized compounding yield in fact measures the yield to maturity from a combination of two investments rather from simply holding the bond itself until maturity
Teaching Bond Valuation: A Differential Approach Demonstrating Duration and Convexity
No full textA traditional bond pricing scheme used in introductory finance texts is simple enough but not necessarily intuitive. The differential approach suggested here presents premiums (discounts) as coupon interest over- (under-) payments to make bond pricing dynamics more intuitive. The primary pedagogic benefit is the differential approach demonstrates the more sophisticated bond valuation concepts of duration and convexity
Finance Professors’ Use of the Case Method at Harvard and Darden MBA Programs: Ensuring Students’ Technical Knowledge in Finance Courses Using the Case Method
No full textOne of the potential obstacles of using cases in finance courses is the task of ensuring that students receive the required technical knowledge of the quantitative material. This qualitative study provides a unique perspective of the specific recommendations and practices of multiple, seasoned finance professors from Harvard Business School and University of Virginia’s Darden Graduate Business School, two top-ranked MBA programs with long-standing commitments to the case method as their primary philosophy of teaching and learning. The information gleaned from the interviews and classroom observations of this study can assist educators in overcoming potential obstacle of students’ lack of technical knowledge
NPV Simulation: Technical Associates, Inc.
No full textThis paper presents a scenario analysis from an actual firm, one with a substantial level of sophistication. In this firm, input data is regularly created using probability distributions for sales estimates, cost estimates, tax considerations, and depreciation schedules. One limited scenario is presented in this paper - simplistic enough that students are able to concentrate on the mechanics of the simulation, but complex enough to reflect the degree of quantitative capability necessary in a financial analysis group within a company. The lack of a real-world example is thus solved in this paper, and sufficient guidance is given to direct a student through the solution of the simulation using Excel. In addition, this paper provides guidance for professors who would like to adopt the method, or the case, or both, in their coverage of risk adjustments in capital budgeting
A Note on Animating Financial Equations with Scientific Notebook®
No full textStudents of finance are often challenged to understand how financial equations respond to changes in key variables. All too often, the pedagogy offered these students includes usage of static graphs. Although there is a plethora of research in other disciplines showing animation provides superior learning outcomes compared to static images, the use of animation to illustrate financial relationships has received little attention in the financial education literature. This paper and the animations shown on the www.financeanimations.com website demonstrate Scientific Notebook’s ® ability to animate equations commonly taught in university introductory finance courses
Delta Gamma Hedging and the Black-Scholes Partial Differential Equation (PDE)
No full textThe objective of this paper is to examine the notion of delta-gamma hedging using simple stylized examples. Even though the delta-gamma hedging concept is among the most challenging concepts in derivatives theory, standard textbook exposition of delta-gamma hedging usually does not proceed beyond a perfunctory mathematical presentation. Issues such as contrasting call delta hedging with put delta hedging, gamma properties of call versus put delta hedges, etc., are usually not treated in sufficient detail. This paper examines these issues and then places them within the context of a fundamental result in derivatives theory - the Black-Scholes partial differential equation. Many of these concepts are presented using Excel and a simple diagrammatic framework that reinforces the underlying mathematical intuition
Financial Performance Measures: A Review and Synthesis
No full textThis paper examines financial performance measures in both a single-period and multi-period world, discusses the theoretical linkages among these measures, and where possible attempts to provide an integrated analysis. In a single-period world, the measures originate from the same economic model of investment and production theory of a firm and are thus related. These relationships hold in the multi-period world assuming a constant growth and using a popular valuation model. Because no single measure fully captures the broadness that is firm value assessment, multiple measures provide a fuller picture of a firm’s performance
Productive Complements: Too Often Neglected in the Principles Course?
No full textMany great economic thinkers, including Alfred Marshall and William Stanley Jevons discussed the importance of joint production, or productive complements, and there are important applications. Yet many students today could complete an economics major and never be introduced to this important concept