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Discounting at the Spread and Growing Annuities: A Note
No full textIn this note, the relationship between the present value and future value of growing annuities using the “discounting at the spread” method is exhibited. In addition, the work of Hall (1996) is extended, demonstrating a calculator solution for the future value of a growing annuity
Shifts in Supply and Demand and the Corresponding Changes in Equilibrium Price and Quantity: Explaining the Process
No full textMost textbooks are incomplete or potentially confusing in their treatment of the dynamic process resulting from a change in demand or a change in supply. While they are not incorrect in their comparative statics results, they can leave students unclear about the process involved. The authors suggest an approach that addresses the deficiency
What Cosmo Kramer Can Teach Us About Optimal Stopping Times
No full textThe real option literature on investment provides insights into firms’ decisions to enter and exit markets. This literature emphasizes the role of fixed costs of entry, the salvage value of exit, and uncertainty. A major implication of this literature is that it is often optimal to wait. Nonetheless, since the overwhelming majority of this literature uses models with uncertainty, students are often unclear as to the role of each of these components in determining the value of the option to wait. In this paper, I explain the role of uncertainty and costs/salvage value by considering the question: “When is it optimal to stop telling the Bob Sacamano story?” In doing so, I provide a simple and entertaining example to illustrate the importance of uncertainty in the real options literature
Beyond Grades: Using Incentives to Motivate Students
No full textEconomists study how incentives motivate human behavior. However, besides grades, professors do not frequently employ incentives to motivate students in the classroom. This may be because expenses associated with classroom incentives often remain unreimbursed or because other implementation costs are high. In this paper, we demonstrate methods educators can use to motivate student behavior while minimizing costs. We identify a range of options that include: incentives appropriate for large sections, an effective monetary incentive system suitable for smaller classes, tips for using an assortment of non-monetary incentives, and methods for leveraging social capital to motivate student learning and engagement
An Excel-Based Approach for Teaching Markowitz’s Portfolio Optimization Theory
No full textThis paper presents a simple method for teaching the Markowitz Portfolio Optimization topic. The use of Microsoft Excel or Corel Quattro Pro enables students and investors who do not possess a great deal of mathematical and programming expertise to identify meanvariance efficient portfolios which consist of more than two assets. Through this hands-on learning experience, students achieve a deeper understanding of the theory. The exercise also gives the students an eye opening lesson on the practical usability of spreadsheets
Instructional Videos in an Online MBA Finance Course
No full textWe examine student viewing behavior of videos in a 100 percent online class. We find that on average students in the class only watch approximately 42 percent of the videos assigned. We find that students that spend more time viewing the videos for the course have higher final exam scores. Student perception of the usefulness of the videos also enhances their final exam score, indicating that students should be advised on the appropriateness of online course work given their learning style
Deal or No Deal? Teaching the Concepts of Risk and Decision Making Through an Experience Learning Activity
No full textThis paper introduces an innovative method to teach about risk and decision making through an engaging, interactive, and impactful experience learning activity. We simulate consequential decision making given uncertain outcomes by playing the TV game Deal or No Deal. The reflection and discussion allows students to observe how some decisions are behaviorally biased and can result in irrational decision making. Observing their personal behavior and reflecting on the root causes leads students to a deeper understanding of how humans make decisions given uncertain outcomes. Student engagement in the activity and positive student feedback suggests this method is effective
On the Importance of Teaching Real Estate in the Finance Curriculum: an Applied Project for Basic Finance Courses
No full textReal estate is the world\u27s largest asset class. It plays an important role in the economy as a whole and in the portfolios of many individuals around the world. However, most business and even finance students have little exposure to real estate concepts. This paper discusses the importance of real estate and presents a series of exercises that can be assigned in introductory finance classes. Through these exercises, students enhance their overall finance knowledge and learn concepts not usually covered by introductory textbooks, such as choosing a mortgage, refinancing decision, and house affordability
A Spreadsheet Application to Evaluate the Performance of Protective Puts
No full textThis paper presents a spreadsheet application for performance evaluation of three put strategies adopted in practice. In contrast to the single-period protective put found in finance textbooks, these strategies roll over short maturity options over an extended period. The spreadsheet application provides the instructor with a pedagogical tool to illustrate and explain the measurement of insurance costs, the asymmetric impact of the options on the return distribution of the stock, the impact of exercise price on downside protection and upside reduction, and the dependence of the return on the put strategy on the stock price path