Exam preparation, equations, concepts, intuitions…

In my opinion, the best way to prepare for the final exam in Finance 4335 is to read carefully through the Finance 4335 (Fall 2019) Course Overview and make sure that you grasp the intuitions which are behind the topics that appear there. You’ll see a number of formulas in that document that don’t appear on the formula sheet but which are important for exam purposes; e.g., by now, I assume  that everyone

  1.  knows how to calculate and rank order risks on the basis of expected utility;
  2. knows how to apply the standard normal and binomial probability functions;
  3. is aware that the risk premium \lambda is determined by setting expected utility (E(U(W)) equal to the utility of the certainty equivalent of wealth (WCE ), solving for the WCE ,  and subtracting WCE from E(W);
  4. understands that the risk premium (\lambda) is  positively related to the degree of risk aversion;
  5. comprehends that one is risk averse/risk neutral/risk seeking if \lambda is positive/zero/negative;
  6. understands that the Arrow-Pratt coefficient (-U”/U’) indicates the degree of risk aversion; thus, a decision-maker with logarithmic utility (U = ln W) is more risk averse than a decision maker with power utility  ( U Wn)
  7. has learned that in a  world where investors’ portfolios consist of combinations of the riskless asset and the market portfolio, that only systematic is priced; i.e., E({r_i}) = {r_f} + {\beta _i}[E({r_m}) - {r_f}];
  8. understands that riskless arbitrage ensures the formation of so-called “arbitrage-free” prices for financial derivatives such as futures/forward and options;
  9. is aware that option pricing principles can be applied to value the option to default as well as determine the credit risk premium that investors demand from limited liability firms that issue debt.

The formula sheet mostly consists of option-related equations which I don’t expect students to have necessarily memorized, but hopefully y’all  also grasp the intuitions upon which these equations are based.

Good luck!

Erratum – correction of typo in the Finance 4335 Course Overview document

In the Finance 4335 (Fall 2019) Course Overview reading, I discovered a typo in the put option binomial equation located on page 4, bullet point 5, which I have now (as of 10:07 am this morning) fixed.

For what it’s worth, I am impressed by the level of renewed interest in Finance 4335, as evidenced by course website and blog access statistics; specifically, fin4335.garven.com had 296 page views yesterday (the most popular pages were Sample Exams (62 page views), Problem Sets (58 page views), Lecture Notes (56 page views), and Formula Sheets (25 page views. The course blog was even more popular yesterday, with a total of 447 page views…

In closing, as I indicated in my 12/9 “Virtual and real office hours going into the final exam” blog posting, if y’all have any Finance 4335-related questions or concerns going into the final exam, feel free to call, email, or text me between now and then during “regular” business hours.

New and improved (and final) version of the Final Exam formula sheet for Finance 4335 and office hours tomorrow…

I decided today to create a new and improved (and final) version of the Final Exam formula sheet for Finance 4335. If you have previously downloaded and printed this document, I recommend that you toss that version and redownload/print this version. While there weren’t any errors per se in the previous version, I have tweaked this version so that it is clearer and more likely to be helpful when y’all take the Finance 4335 final exam. When you do take the exam, you will find this new version of the formula sheet attached to the exam booklet.

As I indicated in my previous “Virtual and real office hours going into the final exam” blog posting, If y’all have any Finance 4335-related questions or concerns going into the final exam, feel free to call, email, or text me between now and then during “regular” business hours. I will also be available in my office (Foster 320.39) tomorrow afternoon from 1:30 – 3:30 p.m. if anyone cares to stop by.

Good luck on the exam!

Time to complete teacher evaluations for Finance 4335 (along with other courses in which you are enrolled)!

As I am sure you are well aware, today and tomorrow are “Study Days” which should help you prepare for your Fall 2019 final exams. If you haven’t already done so, now would be a good time to complete teacher evaluations for Finance 4335 (along with your other courses), since the window for completing teacher evaluations officially closes as of Thursday, 12/12 at 10 am.

At Baylor, all of your professors undergo annual evaluations concerning quality of teaching, research, and service.  By completing teacher evaluations, you contribute importantly by providing the University with information that may affect not only faculty compensation and promotion/tenure decisions but also provide faculty with useful information concerning ways to improve teaching. Therefore, I encourage you to complete your teacher evaluation for Finance 4335 and all of your other courses!

Finance 4335 final exam schedule and related (Baylor and Hankamer) policies

Please make sure that you take your final exam with the section of Finance 4335 in which you are enrolled.  If you are enrolled in Section 1 (which meets 11-12:15 TR in Foster 203), then your final exam will occur in Foster 203, from 9-11 a.m. on Friday, December 13.  If you are enrolled in Section 2 (which meets 2-3:15 TR in Foster 314), then your final exam will occur in Foster 314, from 4:30-6:30 pm on Monday, December 16.

Here are the official University and Hankamer policies which jointly govern any rescheduling requests for students who have three final exams scheduled for the same day.  According to University policy, having three final exams on the same day apparently constitutes a necessary condition for making a rescheduling request:

1. University Policy on End of Semester Examinations (see current Undergraduate Catalog, page 33):

“No final examination may be given on other than regularly scheduled dates unless approved by the appropriate academic dean.  A student with three final examinations scheduled on the same day may appeal to one of the teachers or the appropriate dean who will reschedule an exam during the final examination period.”

2. Hankamer School of Business procedure regarding rescheduling final exams:

There is a “Petition to Reschedule Final Examination” form that students requesting a Conflict Final Exam are required to complete before they request that you allow them to take their final exam at a time that is different from the published time.

Students should obtain the form from the Hankamer Undergraduate Programs office in Foster Suite 130 and follow the directions given to them with that petition.

Information about the Final Exam in Finance 4335

  • The exam consists of five sections; Part I consists of 12 multiple choice questions worth 2 points each, whereas Parts II, III, IV, and V all consist of “standalone” (multi-part) problems worth 24 points each.
  • You are only required to work four out of five sections. At your option, you may work all five sections, in which case you will receive credit for the four highest scores.
  • Since the maximum number of points possible is 96, all who complete this exam will be rewarded an extra 4 points for writing their names in the space provided. Thus, the maximum number of points possible for this exam is 100. 🙂
  • You may have two hours in order to complete this exam. Be sure to show your work as well as provide a complete answer for each problem; i.e., in addition to producing numerical results, also show that you understand the underlying logic behind your answers.
  • The formula sheet for the final exam in Finance 4366 is now available at http://fin4335.garven.com/fall2019/formulas_final.pdf.  This formula sheet, along with the Standard Normal Distribution Function (“z”) Table, will both be included as part of the final exam booklet.

Better Sleep — Not ‘All-Nighters’ — Helps Students on Final Exams

I assure y’all, that the results reported in the studies cited below apply to students generally, not just in the College of Arts & Sciences and the Robbins College of Health and Human Sciences!

WACO, Texas (Dec. 3, 2018) — Students who met ‘8-hour sleep challenge’ got extra points — but they didn’t need them, thanks to superior snoozing, Baylor studies find.

Finance 4335