Journal of
Financial Education

Volume 36                                               CONTENTS                                      Fall/Winter 2010


Experiment No More: The Long-Term Effectiveness of a Student-Managed Investments Program

James E. Mallett, Lawrence J. Belcher and G. Michael Boyd

As we begin a new year, there are now over 300 student-managed investments programs worldwide [Lawrence [2008]]. What was once viewed as a very risky and unproven academic exercise undertaken by a handful of schools is now an institutionalized experiential learning tool that is increasingly sought by business schools worldwide. Stetson University’s Roland George Investments Program was a pioneer on the SMIP scene, and has become a national leader in student-managed funds. This paper looks at the long term development of the Roland George Program and offers some evaluation of its successes and failures over its 29 year history. We also consider recent developments in SMIP growth, curriculum issues, and technology. This could serve to help other schools in their long term SMIP progress.

Pages 1-15

The Role of Analysts’ Earnings Forecasts in the Valuation Process: An Introductory Overview

Morris G. Danielson, Thomas D. Dowdell and Michael P. Schoderbek

This teaching note provides an overview of how analyst earnings forecasts are used in the valuation process, identifying important links between the disciplines of accounting and finance. To derive estimates of future earnings (and cash flows) for use in the valuation process, analysts observe historical performance (using accounting data) and adjust for changing conditions. We use empirical data to illustrate that while analyst forecasts are imprecise point-estimates of future earnings (a well-known result), these estimates can help investors distinguish between firms most likely, and least likely, to experience a large earnings change. Yet, this information will not necessarily make an investor rich, as a firm’s future stock return is not directly related to its realized earnings growth. Instead, a firm’s stock return depends on whether its future performance exceeds, or falls short of, expectations. This article is designed as a supplemental reading for students in a managerial finance, intermediate accounting, or investments course. A project appropriate for classroom use is included in an appendix.

Pages 16-34


Spreadsheets: Do They Improve Student Learning in the Introductory Finance Course?

Julie A. B. Cagle, Philip W. Glasgo and David C. Hyland

We examine whether the use of spreadsheet assignments affects student learning in the introductory finance course. First, we have two instructors use spreadsheet assignments, while the third instructor does not use the spreadsheet assignments. Then we repeat the experiment with the same instructor using spreadsheet assignments for one section of the course, but not for the second section. In both experiments students are tested on the concepts covered by the spreadsheets. Students that complete spreadsheet assignments perform better than students that are not exposed to the spreadsheet assignments.

Pages 35-52

Dual Discipline Degrees: Working Toward Supply Meeting Demand

LeRoy D. Brooks and Lindsay N. Calkins

A business community survey demonstrates a demand by employers for dual discipline degrees that is nearly equivalent to that for single discipline majors. Accounting and finance was the most popular dual discipline combination from the 66 possible combinations of 12 disciplines. Economics and finance ranked 3rd, and management and finance 6th. These three discipline pairs total 22.5% of all combinations chosen. Finance entered 34.2% of all selected dual discipline pairs, dominating the choices across the other 11 possible dual discipline choices. Examining numerous business schools, dual degree programs are rare, and business schools do not appear to be meeting business needs.

Pages 53-66

An Analysis of the Link Between Performance and Effort Focusing on Student Engagement with Non-assessable Material

Sean Pinder, Les Coleman and Jessica Curtis

This article describes the significant improvement in learning outcomes following the introduction of an innovative new on-line resource, FinanceNow! to students enrolled in the introductory finance unit at the University of Melbourne. Overall, we conclude that those students who access the FinanceNow! materials more frequently exhibit superior performance in the subject. This result is robust across alternative measures of FinanceNow! usage and is still present after controlling for student gender, the basis of a student’s enrollment, and previous academic performance as measured by their ENTER score. This study adds to the growing literature documenting the relationship between effort and performance in introductory finance units.

Pages 67-83

Integrating Investment and Foreign Exchange Returns in a Classroom Portfolio Simulation

Gregory K. Faulk, Joseph C. Smolira and Sean SehyunYoo

This paper describes a class project used in the international finance class at the authors’ university. The project combines investment and exchange rate movements to provide a realistic model of international investment. The simulation project introduces students to purchasing power parity, the international Fisher effect, interest rate parity, the expectations theory of forward rates, and the return components of international investing. The simulation provides students the opportunity to see these theories in action over time using current data and reinforces the applicability of these concepts in the "real" world.

Pages 84-97

Using the Price-to-Earnings Harmonic Mean to Improve Firm Valuation Estimates

Pankaj Agrrawal, Richard Borgman, John M. Clark and Robert Strong

This paper reviews some well-known options to estimate the portfolio average of the price-earnings (P/E) multiple, emphasizing the logic and calculation of the harmonic mean. The harmonic mean is a useful but oftentimes unfamiliar calculation to many students and professionals. The simple arithmetic mean when applied to non-price normalized ratios such as the P/E is biased upwards and cannot be numerically justified, since it is based on equalized earnings. The paper advocates the use of the classic harmonic mean when the need is for an equal-dollar-weighted average and the weighted-average harmonic mean when the need is for an index style market-weighted average.

Pages 98-110

Alternative Designs for Inflation-Indexed Bonds: P-Linkers vs. C-Linkers

Donald J. Smith

This paper analyzes the before-tax and after-tax cash flows for two stylized types of inflation-indexed bonds—"P-Linkers" and "C-Linkers." P-Linkers, like U.S. TIPS, have a fixed interest rate and link the accrued principal to changes in the consumer price index. C-Linkers are floating-rate notes that adjust the coupon interest rate for inflation while the principal is held constant. While both types of linkers provide protection from unexpected inflation, they differ significantly in terms of the amount and timing of cash flows, how and when cash flows are taxed, as well as in their price sensitivities to changes in real rates (i.e., their duration statistics). These differences impact investor strategies, especially those at aim to match the durations of assets and liabilities, and decisions about holding the inflation-indexed bonds in a tax-deferred structure like a retirement plan.

Pages 111-132


Solar Initiative: Is It Financially Feasible?

Thomas M. Patrick, Andrew B. Carver and Clare Bohnett

In 2009, Tom Eldridge, the school district business administrator was asked to perform a financial analysis of an installation of solar panels on the roof of every school in Lawrence Township, New Jersey. Upon completion of Eldridge’s analysis, he was to make a recommendation to the Board of Education addressing both the financial implications of going solar and also responding to the concerns of other interested stakeholders.

Pages 133-142

Gateway Computers: Financing an Acquisition

Susan White

Gateway Computers just purchased eMachines and wanted to consolidate this purchase as well as finance its future growth. Gateway had success with convertible offerings in the past and wanted to choose among convertible debt, convertible preferred stock and common equity. The firm needed to decide which financing option was the best fit for its current and future funds needs and to appropriately price the chosen financing vehicle.

Pages 142-154