Advances in
Financial Education

#1 - Trillion Dollar Bet: A Video Supplement for Teaching Derivatives

Lisa M. Fairchild and Richard A. Grayson

Several previous pedagogical papers have highlighted the usefulness of videos as a supplement to teach topics in finance courses. In this paper, we provide a teaching plan for using the video Trillion Dollar Bet as a supplement for teaching derivatives. Within our teaching plan, we provide an overview of the video, guidance on preparing students with the appropriate background information prior to seeing the video, and a set of discussion questions and answers. We have used the Trillion Dollar Bet in a variety of courses and the student response has been overwhelmingly positive.

Pages 1-14

#2 - Using Federal Reserve Publications in Institutions and Markets Courses:
An Approach to Teaching Critical Thinking

Fiona Robertson, John C. Bean and Dean Peterson

Financial institutions and markets (FIM) courses are often difficult to teach because textbooks compartmentalize topics into stand-alone chapters/units that don’t capture the dynamic, interrelated nature of real-world financial problems. This compartmentalization encourages rote memorization of institutional descriptions and rules rather than high-level critical thought. This paper proposes a strategy for incorporating Federal Reserve publications into FIM courses in order to accelerate students’ growth as disciplinary thinkers and arguers. By revealing the controversy and uncertainty involved in financial decision-making, Federal Reserve publications immerse students in a problem-exploring process quite different from the mechanical treatment found in texts. We present a rationale for incorporating Fed publications in a FIM course, demonstrate the ease with which they can be used in the classroom, offer examples of critical thinking assignments based on Fed publications, and explain the benefits to students in terms of learning and engagement.

Pages 15-25

#3 - A Comparative Analysis of Journal Outlets in Business Education:
Finance and Other Business Disciplines

David C. Schirm

This paper documents the limited opportunities for publication of manuscripts that focus on research in financial education and the relatively low ranking given to these available journal outlets in finance compared to other functional areas of business. The primary sources of information for this paper are the Cabell’s Directories of Publishing Opportunities In Accounting, Economics and Finance, Management, and Marketing (2000), 8^th ed. and previously published articles dealing with the ranking of journals.

Pages 26-47

#4 - The Efficacy of Computer Generated Visualization of Financial Ratios

Rodrigo A. Obando and Michael Tucker

Ratio analysis involving the comparison and ranking of multiple companies is a difficult exercise for students in even upper level finance courses. To facilitate such ranking and comparison of ratios a computer generated pictorial display, a Star Icon, of individual company’s divergence from benchmark ratios by industry, sector and S&P 500 was constructed. Students from Financial Management (2^nd level finance course) sections were instructed to rank companies with numerical data only in one section and with numerical and Star Icon data in the other. The section with the Star Icon display of data performed more effectively, efficiently, and with more confidence than the numerical data only section demonstrating the efficacy of visualizing financial ratios.

Pages 48-57

#5 - Integrating Simulation and Sensitivity Analysis in a
Dynamic Capital Budgeting Spreadsheet

Benjamin L. Dow, III and Paul D. Newsom

Time constraints, as well as mathematical and statistical complexity, often preclude instructors from properly incorporating risk analysis concepts of capital budgeting in an introductory finance course. This paper illustrates how Excel’s RandBetween function and interactive spinners can be incorporated in a basic capital budgeting spreadsheet example to illustrate simulation and sensitivity analysis of a project’s anticipated cash flows. The simple modifications presented in this paper permit instructors to introduce basic concepts of forecasting risk at the introductory level and allow for more detailed statistical analysis at the advanced level.

Pages 58-69

#6 - Teaching Earnings Per Share: A Conceptual Approach Based on Rate of Return

Lanny G. Chasteen

This paper uses a rate of return approach to explain the logic and concepts underlying the earnings per share (EPS) calculations and reporting requirements under FASB Statement No. 128, "Earnings Per Share." A rate of return approach clearly illustrates how net income and the resulting EPS number can be affected by profitability, which affects the numerator of EPS, and financing decisions, e.g., the issuance of common stock, convertible securities, or stock options, which affect (or could affect) the denominator of EPS. The paper is applicable to students in both finance and accounting classes and should appeal to instructors who wish to stress only the conceptual aspects of EPS as well as to those who wish to cover the technical aspects in detail.

Pages 70-81

# 7 - Internet Assignments in Principles of Financial Management

Nell S. Gullett and Arnold L. Redman

Anyone with an Internet connection has access to a wealth of free financial information. Students will find it useful to know where financial information can be found and what financial information is available on the web to make investment decisions when they become employed and begin investing. The purpose of this paper is to describe a means for introducing all business students to some free financial information sources available via the Internet through the principles of financial management course.

Pages 82-98

#8 - Inflation-Adjusted Retirement Planning

Scott Hoover

Textbook treatments of retirement planning typically rely on annuity-based analyses that ignore the impact of inflation. We analyze the impact of ignoring inflation by developing equations for growing annuities and then by comparing retirement planning under the no inflation assumption to retirement planning under a non-zero inflation assumption. We find that ignoring inflation typically results in retirement plans that greatly underestimate the savings needed to maintain a given quality of life during retirement. As such, annuity-based analyses should not be used for retirement planning. We also explore scenarios in which inflation rates and real returns are not constant, and explore the importance of using accurate forecasts. We find that the accuracy of inflation forecasts is relatively unimportant, while the accuracy of real return forecasts is of critical importance.

Pages 99-112