Advances in
Financial Education

#1 - Boards of Directors in the Modern Corporation

Michael Dewally and Daniel Park

This survey discusses the three major topics about boards of directors: 1) the relationship between the board and firm performance, 2) the relationship between the board and the CEO, and 3) the board itself. Whereas larger boards are associated with lower firm value, no clear relations between board leadership structure, compensation, ownership or frequency of board meetings and firm performance exist. Board ownership, composition and compensation structure impact CEO’s turnover rate but not his compensation. Firms change their board composition on an as needed basis even though board size has steadily declined over time. There is evidence that an active labor market for directors provides board discipline.

Pages 1-35

#2 - Teaching Portfolio Management with Real Dollar and Imaginary Portfolios:
Our Experience and Class-Tested Exercises

Edward A. Moses and J. Clay Singleton

Most business schools offer at least one finance-related class that addresses portfolio management. In many of these classes students manage either real dollar or imaginary portfolios. Through our experience we have come to believe real dollar portfolios have a higher educational value. We also realize that assembling and supervising a real dollar portfolio can be a challenge for many schools. In the first section of this article we share our experience in funding, designing, and teaching a portfolio management course with a real dollar portfolio. We also describe how our pedagogical approach has been enhanced by a realistic institutional setting where students focus first on asset allocation and then on security selection. In the second section of this article we share our experiences using EnCorr, Ibbotson Associates’ portfolio construction and management software. This professional software helps our students understand how asset allocation affects portfolio design, asset selection, and rebalancing. This section of the article includes EnCorr-based class tested exercises that lead students through the portfolio construction process and should be useful to professors whether they employ real or imaginary dollar portfolios.

Pages 36-71

#3 - A Spreadsheet Model for Analyzing Home Buying and Financing Decisions

Sandip Mukherji

This paper describes a project for developing a spreadsheet model to analyze whether to rent or buy a house, and if points should be paid for a lower interest rate. The project provides students with the experience of building a spreadsheet model, enhances understanding of relevant factors for financial analysis, emphasizes the importance of assumptions, requires applications of several finan-cial formulas and techniques, develops Excel skills, and strengthens analytical and writing skills. In addition, students develop an objective model that can be used to analyze one of the most important investment decisions they will face.

Pages 72-88

#4 - Financial Policy: Some Content for the Usual Caveats

Clifford F. Thies

This paper develops a model of corporate financial policy that explains: (1) the optimal debt-to-equity ratio, (2) the optimal dividend payout rate, and (3) the optimal cash reserve. What is reassuring about this model is that, in the case where internal solutions are obtained, its optimality conditions are the standard, textbook conditions. What is informative is the case where a corner solution is obtained for the dividend payout ratio, in which case the firm would naturally be viewed as "liquidity-constrained." In this case, the firm is induced into being more levered and less liquid than otherwise similar, non-constrained firms. Furthermore, as the model is developed under the assumption that financial policy maximizes the value of the firm (as opposed to the maximization of shareholder value), the model might not apply to highly-levered firms that have suffered a series of earnings disappointments.

Pages 89-98

#5 - Learning Styles and Portfolio Management

David Nawrocki and Christine Nawrocki

Gregorc’s learning styles and the Myers-Briggs personality type indicator are in wide use by educators. The learning styles method allows teachers to understand their students’ learning processes as well as understanding their own teaching styles. This paper will provide a short overview of learning styles and personality types and explore their use in a portfolio management class. A small study of student learning styles and personality types is also presented. Before reading this paper, the reader should take the Gregorc learning styles and Myers-Briggs tests before he/she can influence the results of these tests. Knowledge of the test parameters will bias the results. The reference list provides links to the various tests available on the internet.

Pages 99-110

#6 - Financial Literacy Training in an Academic Trading Room:
Expanding Practical Education in Finance

Kristin Bristol, David Fehr and R. Larry Johnson

A nationwide awareness of the need to raise students’ financial literacy levels has surfaced recently as a result of a number of studies throughout the United States focusing on financial literacy. The need to examine this issue in more detail is evidenced by the widespread lack of parental personal finance instruction, limited personal finance instruction in both primary and secondary schools and the overall difficulty experienced by many individuals in grasping and applying the basic concepts of personal finance (Mandell, 1998, 2001; American Institutes for Research, National Council on Economic Education, and Council of Chief State School Officers, 2002; Carvahal, 2002). The purpose of this paper is to provide an overview of the development and implementation of a financial literacy program at Southern New Hampshire University (SNHU) including: (1) A brief overview of the literature in financial literacy; (2) The pedagogical opportunities made available to both SNHU and the community by the development of the "Center for Financial Studies" and its high technology trading room; (3) A brief outline of the SNHU mission and how financial literacy is integrated; and (4) The development and administration of financial literacy curriculum modules as a part of the Freshman Experience Course (FEX) at SNHU. Both the challenges and results are explored in this paper.

Pages 111-133

#7 - Using Professional Investment Analysis Software in the Classroom

Edgar A. Norton and J. Clay Singleton

Our security analysis and portfolio management students have benefited from using professional investment software in the classroom. This article describes how we have structured exercises and class projects that help us take advantage of this software’s flexibility while accomplishing learning outcomes and learning objectives common to most investment classes. While class time is required to show students how to operate this software, our experience suggests the benefits far outweigh the costs. Using professional investment software has given our students access to a wide variety of capital market indices without requiring us to keep up with constantly changing sources. They have easy access to sophisticated techniques that would be time consuming to replicate in a spreadsheet. Our students connect the concepts we teach with investment practice and easily go beyond the exercises we assign to learn more on their own. Finally, using this software provides our students with a marketable skill that is valued by investment professionals.

Pages 134-158