Journal of
Financial Education

Volume 37                                               CONTENTS                                      Spring/Summer 2011


Using Item Set Exams to Access Higher Level Learning in Corporate Finance Courses

John D. Stowe and Philip J. Young

Although the item set exam format is used extensively in professional certification exams, it has not been widely adopted in academia. The item set exam can be viewed as an alternative to multiple choice exams or essay exams, sharing some of the strengths and weaknesses of both formats. An item set essentially is a minicase, a short written case followed by several multiple choice questions (items) that relate to the case. This paper describes some of the practical issues a professor will confront in developing and using effective item sets as assessment tools. To be concrete, we provide several examples of item sets that might be suitable to use in an undergraduate or beginning MBA corporate finance course.

Pages 1-28


On the Use of Non Tenure Track Faculty and the Potential Effect on Classroom Content and Student Evaluation of Teaching

Nancy Mohan

Most business schools employ both tenure and non tenure track faculty to deliver course instruction. Extensive use of non tenure track faculty, though, may influence student evaluation of teaching and grade distributions. Faculty and administration should be aware of these unintended consequences during the faculty evaluation process. Preliminary findings in this research suggest that non tenure track instructors are rated higher by students and that tenure track faculty can partially offset this disadvantage by awarding a higher percentage of A’s.

Pages 29-42


Applying Options in the Classroom: Selling Calls and Puts on Grades

Joseph C. Smolira and Denver H. Travis

Trading simulations have become more common in the finance classroom. One problem with traditional trading simulations is that using play money as currency often creates a situation where the winning strategy is an excessively risky strategy. In this paper, we introduce an options simulation which allows students to buy a call or a put on their final exam score. Because the students pay for the options with an important currency, final exam points, they are required to fully analyze the decision to buy the option since there is a real potential loss in the purchase.

Pages 43=54

The DL-Trading Game

Mehmet F. Dicle and John Levendis

The Dicle-Levendis-Trading Game is a new, open-source, instructional trading game developed to teach and assess finance at the introductory undergraduate through MBA levels. Teaching portfolio management and employing market models such as CAPM, students cannot have a practical understanding of the concepts unless they try to put together a portfolio with a target beta. The game enhances student learning by engaging student interest in a learning-by-doing environment. It is linked to an excel spreadsheet that provides automatically generated, and objective, feedback to students. The Trading Game also allows one to more easily collect objective data on whether students are achieving a course’s learning goals: a valuable tool for AACSB accreditation.

Pages 55-82

A Calculator-Friendly Transformation Method for Valuing Finite Growing Annuities and Annuities Due

Bruce D. Bagamery

Finite growing annuities and annuities due are important topics in corporate finance, investments, and personal financial planning. However, the usual formulas for valuing these growing streams are sufficiently complex that most texts do not treat them in much detail. To make this topic more accessible to students, we describe a comprehensive approach that can more readily be used to solve valuation problems involving finite growing streams. The approach involves transforming a nominal stream of growing payments into a real (or "de-growthed") stream of constant payments. These real values can then be input into time value of money registers of financial calculators to quickly obtain solutions in real terms, and then, if necessary, the real solution can be transformed back to a nominal value. For pedagogical clarity, we provide an extended numerical example, and then discuss and solve fourteen different types of finite growing stream problems.

Pages 83-100

Excel-Based Monte Carlo Simulation as a Capital Budgeting Risk Management Tool

John Rozycki

Monte Carlo simulation is a useful capital budgeting tool that allows the user to reflect the uncertainty associated with various cash flow components. The output from the simulation consists of distributions of net cash flows, which can be used for decision-making and risk management. Unfortunately, Monte Carlo simulations are often implemented using specialized software, making them inaccessible to many students. Moreover, in using specialized software, students may perceive Monte Carlo simulation as a "black box." I demonstrate how to implement Monte Carlo simulation for a complex capital budgeting problem using Microsoft Excel (Excel) and three common distributions: normal, lognormal and uniform. No additional software is needed. Since the simulation is built by modifying an already-understood static capital budgeting worksheet, it is more likely that the simulation will be understood and used.

Pages 101-129

A Clarification Regarding the MIRR Shortcut Function in the Texas Instruments® BAII Plus Professional

Steven T. Jones

Ng [2009] raises an important issue regarding the Modified Internal Rate of Return (MIRR) shortcut function in the Texas Instruments BAII Plus Professional: namely, in the absence of an explicitly entered discount rate, this function can give an incorrect answer in a problem featuring nonconventional cash flows. The range of situations to which this issue applies is both broader and more serious than might be inferred from Ng [2009]; but, correcting the problem is a bit simpler than one might imagine.

Pages 129-130


Iceland’s Financial Meltdown

Arthur L. Centonze

The 2007 global financial crisis began in the world’s most sophisticated financial centers and spread rapidly throughout advanced market economies. Iceland’s highly concentrated and aggressively expanding banking system and its small, open and rapidly growing economy suffered significant economic and financial losses resulting from the crisis. This case explores Iceland’s economic, financial and political circumstances prior to the global crisis; the structure of its banking sector and central bank; the central bank’s monetary policy objectives, instruments and implementation; and the factors contributing to the country’s 2008 financial meltdown. The terms and conditions of the IMF rescue and the case for euroization are discussed. The key decision-makers in the case are the country’s Prime Minister and Chairman of the Central Bank’s Board of Governors. By the close of 2008, they need to make difficult choices in managing the short-term path of the crisis as well as make fundamental changes in the long-term economic and financial structure of the country that will restore global confidence in the Icelandic financial system and lead to economic recovery and growth.

Pages 131-168