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Risk and Return: Part I
ANSWERS TO BEGINNING-OF-CHAPTER QUESTIONS
Our students have had an introductory finance course, and many have also taken a course on
investments and/or capital markets.
Therefore, they have seen the Chapter 2 material previously.
However, we use the Beginning of Chapter (BOC) questions to review the chapter because our
students need a refresher.
With students who have not had as much background, it is best to go through the chapter on a
point-by-point basis, using the PowerPoint slides.
With our students, this would involve
repeating too much of the intro course.
Therefore, we just discuss the questions, including the
model for Question 6.
Before the class, we tell our students that the chapter is a review and that
we will call on them to discuss the BOC questions in class.
We expect students to be able to
give short, incomplete answers that demonstrate that they have read the chapter, and then we
provide more complete answers as necessary to make sure the key points are covered.
Our students have mainly taken multiple-choice exams, so they are uncomfortable with essay
Also, we cover the chapters they were exposed to in the intro course rather quickly, so our
assignments often cover a lot of pages.
We explain that much of the material is a review, and
that if they can answer the BOC questions (after the class discussion) they will do OK on the
We also tell them, partly for motivation and partly to reduce anxiety, that our exams will
consist of 5 slightly modified BOC questions, of which they must answer 3.
We also tell them
that they can use a 4-page “cheat sheet,” two sheets of paper, front and back.
They can put
anything they want on it—formulas, definitions, outlines of answers to the questions, or
The better students write out answers to the questions before class, and then extend them after
class and before the exams.
This helps them focus and get better prepared.
Writing out answers
is a good way to study, and outlining answers to fit them on the cheat sheet (in really small font!)
also helps them learn.
We try to get students to think in an integrated manner, relating topics
covered in different chapters to one another.
Studying all of the BOC questions in a fairly
compressed period before the exams helps in this regard. They tell us that they learn a great deal
when preparing their cheat sheets.
We initially expected really excellent exams, given that the students had the questions and could
use cheat sheets.
Some of the exams were indeed excellent, but we were surprised and
disappointed at the poor quality of many of the midterm exams.
Part of the problem is that our
students were not used to taking essay exams.
Also, they would have done better if they had
taken the exam after we covered cases (in the second half of the semester), where we apply the