Advances in
Financial Education

#1 - An Ounce Of Common Sense Is Worth A Pound Of Theory

Ernest N. Biktimirov

This paper proposes the use of proverbs in the teaching of finance. Familiar proverbs facilitate teaching by appealing to students’ prior knowledge, by presenting ideas in a concise and original way, and by making the learning process more enjoyable and efficient. The paper presents more than five dozen proverbs accompanied by their related financial concepts, which are organized into twelve thematic topical groups. Strategies for the effective use of proverbs in the classroom are suggested as well.

Pages 1-12

#2 - Using Learning Outcome Statements To Guide Learning And Testing:
The CFA© Program

Robert R. Johnson, Jan R. Squires and George H. Troughton

Although learning objectives have been widely adopted in university curricula and professional learning programs, little research has been conducted as to their effectiveness as a pedagogical tool. To determine the opinions of primary users of the learning outcome statements (LOS) in the CFA Program, we surveyed: (1) a group of CFA candidates, and (2) the CFA charterholders who graded CFA exams. Both groups found LOS to be valuable learning tools. Over 80 percent of both groups agreed or strongly agreed that LOS help place individual readings in the context of a larger study plan and help identify important individual concepts in a reading. Respondents also indicated that LOS are as important for higher order learning (e.g., synthesis) as for basic concepts.

Pages 13-27

#3 - Integrating Real-World Experience With The Classroom Experience:
Two Different Approaches

George Hruby, Douglas Kahl and Melinda Newman

This paper presents two methods for bringing real-world experiential learning to teams of undergraduate students in upper-level, capstone finance courses for Finance majors in both the Corporate Financial Management track and the Financial Services track. The Bridges program student teams work with clients in the community helping them solve finance-related problems. In the Student-Managed Investment Fund teams of students compete to manage a real money portfolio in the real world with real financial consequences. We discuss the benefits to the students, the university, and the community for both programs.

Pages 28-40

#4 - A Retrospective Life Insurance Method: A Pedagogic Spreadsheet

David R. Lange and Betty J. Simkins

This paper describes an innovative Excel spreadsheet model, referred to as the Retrospective Method Spreadsheet, that has been successfully used in risk management and insurance, and personal finance courses to demonstrate the retrospective life insurance method. There are numerous pedagogic benefits of modeling life insurance funding in a spreadsheet application, especially when class time is limited. Our method provides an intuitive understanding of the sophisticated mathematical and statistical models common to actuarial science. The model is quite flexible and can be applied to life insurance policies (e.g., interest-sensitive whole life and universal life products) reflecting a variety of fee, expense, surrender charges, current interest rates or interest rate scenarios. Furthermore, current cost of insurance assumptions may be generated for any age, by gender, and for any proposed premium payment pattern. Given the interest rate sensitivity of the spreadsheet application, the paper also includes a discussion of how to utilize Monte Carlo simulation in investigating the impact of interest rate variability on insurance policy performance.

Pages 41-64

#5 - An Integrated Approach To Teaching Financial Institutions And Markets
Using A Comprehensive Project

Marsha Weber

This paper describes a comprehensive project used in the Financial Institutions and Markets course. The project provides students with the opportunity to locate and analyze data and to go beyond the textbook to increase their understanding of how markets function and interact with each other and how financial institutions operate. Pedagogical goals for the integrated semester-long project are similar to those proposed by Erickson [1999] and include: 1) making textbook finance real and alive for students; 2) introducing students to sources of financial information on the Internet; and 3) teaching or reinforcing spreadsheet and analysis skills.

Pages 65-82

#6 - Teaching Coupon Bonds Valuation: Old And New Methodolgies

Antoine Giannetti

Coupon bonds valuation has undergone tremendous theoretical and practical changes in the past two decades. Indeed, the traditional approach based on the so-called Yield to Maturity (YTM) are being progressively phased out for new no-arbitrages approaches based on the zero-coupons (or spot rates) curve. These changes are somehow difficult to integrate for the instructor since YTMs are still widely reported in the financial industry. In this paper, we provide a simple but illuminating example that may better convince students that YTM use is not appropriate for coupon bond valuation since it results in arbitrage opportunities.

Pages 83-87

#7 - A Risk-Adjusted Cost Comparison Of Auto Leasing Versus Purchasing

Charles Corcoran

An analytic template for comparing the cost of auto leasing versus purchasing with borrowed funds is found in all the major Personal Finance texts. They all utilize nominal, non-risk-adjusted cash flows. Popular consumer finance web sites such as www.edmunds.com likewise provide lease calculations, but, again, using nominal cash flows. This paper argues for a more robust academic model, incorporating opportunity cost and risk adjustment values. The interest rate by which the residual value is discounted heavily influences the lease versus buy outcome. Discounting at today’s relatively low market interest rates results in a considerable cost savings to buying compared to leasing.

Pages 88-93

#8 - Case Study: Lucent Technologies: Growth Projections, Analyst
Recommendations, And Financial Distress

Candy Bianco, Patricia Clarke and Kathryn Wilkens

Lucent Technologies Inc, the largest firm in the telecommunications industry by 1999, found itself on the brink of bankruptcy less than two years later. Lucent had pursued a high-growth strategy, aggressively expanding into global markets and customer financing. Even though new valuation methods and business models were developed to accompany the extensive growth of the 1990s, the use of fundamental financial techniques and standard business models would have identified weaknesses in Lucent's strategy and financial performance before market analysts recognized them in late 2000. More ethical business practices may have averted problems.

Pages 94-109