The Formula Sheet for Finance 4335 Midterm Exam 1 (scheduled for Tuesday, February 18, 2-3:15 pm in Foster 428) is now available…

… at http://fin4335.garven.com/spring2020/formulas_part1.pdf. This document will be appended to the back of the exam booklet. I recommend that y’all familiarize yourselves with this formula sheet, particularly in context with the information provided in the Finance 4335 Midterm 1 Synopsis.

Expected utility theory (EUT) is the foundation for decision-making under risk and uncertainty. Although EUT is elegant, a more practical framework that is logically consistent with EUT would be quite useful, and this is where the mean-variance and stochastic dominance models come into play. Essentially, the mean-variance and stochastic dominance models represent “special cases” of EUT, and as such, these models provide useful shortcuts to EUT.

Tomorrow, we will complete our coverage of the “Decision Making under Risk and Uncertainty” topic by focusing further attention on the so-called mean-variance model and introducing the stochastic dominance model.

Thursday’s class will be devoted to a review session for Midterm Exam #1, which is scheduled to occur in class on Tuesday, February 18. I highly recommend that students read the 2-page Finance 4335 Midterm 1 Synopsis prior to coming to class that day. I also recommend reviewing the various class problems and problem sets that have been assigned and midterm 1 from Fall 2019. After Thursday’s class next Thursday, I will post the solutions for problem set 4 and for Fall 2019 midterm 1 so that everyone will the opportunity to check their work on these assignments.

Typo on Problem Set 4 now fixed

This morning, I discovered a typographical error on Problem Set 4 which is now fixed. Therefore, if you have previously downloaded Problem Set 4 prior to now, replace it with the corrected version that is now online.

Problem Set 3, due Thursday, 2/6, is now available

I just posted Problem Set 3 on the course website. It is due at the beginning of class on Thursday, 2/6.

(1) Current (January 30, 2020) Course Numeric Grade = (.10(Class Attendance) +.10(Quizzes) +.20(Problem Sets))/.4

Or course, equation (1) is a special case of the final course numeric grade equation (equation (2) below) which also appears in the course syllabus:

(2) Final Course Numeric Grade =.10(Class Attendance) +.10(Quizzes) +.20(Problem Sets) + Max{.20(Midterm Exam 1) +.20(Midterm Exam 2) +.20(Final Exam),.20(Midterm Exam 1) +.40(Final Exam),.20(Midterm Exam 2) +.40(Final Exam)}

As the spring semester progresses and I continue to collect grades in the attendance, quiz, problem set, and exam categories, then the course grade on Canvas will dynamically incorporate that information on a timely basis for each student. After I record midterm 1 grades, I will apply equation (3) below (also a special case of equation (2) above) to determine your numeric course grade at that point in time:

(3) Course Numeric Grade after Midterm 1 = (.10(Class Attendance) +.10(Quizzes) +.20(Problem Sets) +.20(Midterm 1))/.6

After I record midterm 2 grades, I will apply equation (4) below (also a special case of equation (2) above) to determine your numeric course grade at that point in time:

(4) Course Numeric Grade after Midterm 2 = (.10(Class Attendance) +.10(Quizzes) +.20(Problem Sets) +.20(Midterm 1) +.20(Midterm 2))/.8

After I record final exam grades, I will use equation (2) above to determine your final course numeric grade, and (as also noted in the course syllabus), the final course letter grade will be based upon the following schedule of final course numeric grades:

 A 93-100% C 73-77% A- 90-93% C- 70-73% B+ 87-90% D+ 67-70% B 83-87% D 63-67% B- 80-83% D- 60-63% C+ 77-80% F <60%

Problem Set 2 question

Here’s a brief Q&A that I had last evening with a student about Problem Set 2:

Q: Hi Dr. Garven, I was wondering if I should use =stdev.p or =stdev.s when solving for the standard deviation on Excel. I understand this is a sample so =stdev.s is the formula I presume that I should use but I’m not quite sure. Which should I use?

A: Neither – the “=stdev.p” and “=stdev.s” commands in Excel are useful for calculating the standard deviation of observed realized values of a random variable. In problem set 2, the investor contemplates expectations of future state-contingent returns on securities. Since standard deviation is the square root of the variance, start by calculating variance (see p. 9 of the Statistics Tutorial, Part 1 lecture note).

New (1 page) reading entitled “Mean and Variance of a Two-Asset Portfolio”

I just posted a new (1 page) reading entitled "Mean and Variance of a Two-Asset Portfolio" which (not surprisingly) explains the origins of the formulas for mean and variance of a two-asset portfolio. I expect you’ll find such knowledge very helpful in understanding and completing the 4th and 5th sections of the Statistics Class Problem as well as parts D, E, and F of Problem 1 and part B of Problem 2 in Problem Set 2.

CFA Society (DFW) Student/Awareness Scholarships for June 2020 and December 2020 CFA Exams

What is it?

The CFA Institute grants “Affiliated Schools” such as Baylor several scholarships per year in accordance with Official Scholarships Rules. Scholarship awards reduce the CFA Program enrollment and exam registration fees to \$350, which includes the eBook curriculum.

How to apply?

If you are not enrolled in the CFA Program, you must create a CFA Institute account in order to receive your login information and access the scholarship application. The online application can be found here: https://www.cfainstitute.org/en/programs/cfa/scholarships/student

Candidates should (1) submit the application form on the CFA Institute website and (2) email Brandon_Troegle@baylor.edu prior to January 30, 2019, though earlier applications are encouraged. In the body of the email, please include:

• A summary statement on why you should be considered for the scholarship. This statement should include what you hope to achieve by pursuing the CFA charter, your career goals, and you can discuss academic achievements/performance including GPA information in you wish.

• Major(s)

• Did you apply for the Access Scholarship (the other scholarship)? If not, why not?

• Any other information you believe will aid in the scholarship decision

What is the evaluation process and criteria?

Awards will be made based on a combination of factors including interest in and rationale for pursuing the CFA charter, academic accomplishments, and other personal characteristics that indicate the applicant is a strong scholarship candidate.

Welcome to the Spring 2020 edition of Finance 4335!

Happy new year!  My name is Dr. James R. Garven, and I am your professor for the Spring 2020 edition of the Risk Management course at Baylor University.  Here are a few things to keep in mind as we head into the beginning of the Spring 2020 semester:

1. Finance 4335 will meet on Tuesday and Thursday from 2-3:15 p.m. in Foster 428 (beginning on January 14).

2. The home page for Finance 4335 is at http://fin4335.garven.com, and the course syllabus is at http://fin4335.garven.com/syllabus.pdf. I use Canvas for two purposes only: linking to the course website and posting grades.

3. Course-related documents (e.g., assigned readings, problem sets, sample exams, lecture notes, etc.) are distributed from the course website.

4. The course blog is at http://risk.garven.com and linked from the “Course Blog” button on the home page of the course website. I use the course blog to post important announcements and provide insights linking course topics with the “real” world. I recommend that you regularly follow the course blog via any of the following methods: