Wednesday, December 29, 2004

Tsunami relief funds

Well we talk about giving back in some classes, here is a chance.

Red Cross-Red Crescent - Make a donation At some level this is not the correct use of this blog, but on another level if it helps, I am willing to break the rules. This is getting posted on all of my blogs and on the website itself (later tonight).

After seeing the total destruction caused by the tsunami, I decided to end my week "vacation" from posting and post a link for people to donate. To say the destruction is horrific is an understatement. Money will not make bring back the lives (estimated now at almost 80,000 and maybe 100,000) but may help reduce some of the suffering and even prevent the feared epidemics that the deaths may cause.

CNN has complied a list of aid societies. If you do not want to give to the RedCross/Red Crescent, then pick another. But please give some :)

Additionally at our Allegany Store we will be accepting donations which will be forwarded to the RedCross/RedCrescent Society. Just tell any cashier or stop at the service desk.

Thursday, December 23, 2004

Reason #100000 to not smoke

CollegeJournal | On the Job

"Gradually though, where employees smoke will become less of an issue, because in Omaha and seven other states, Union Pacific won't hire smokers.'

"While obesity, stress and muscular-skeletal problems like carpal-tunnel syndrome are all on the radar screen, companies are going after smoking with particular zeal. Union Pacific's policies still aren't commonplace, but the company is far from alone in its efforts to openly discourage smoking and encourage quitting.

Home-improvement retail chain Lowe's doesn't allow smoking on its corporate campus or anywhere on its store properties, including the parking lots. And while Union Pacific relies on the honor system to ferret out smokers during the hiring process (there's a question on the job application), Alaska Airlines has gone a step further, requiring potential hires to pass a nicotine test before they can come on board.

The reason for such attention: health and workplace experts know more about smoking today. "There's so much evidence about the impact of smoking on health and productivity," says Helen Darling, president of the National Business Group on Health, in Washington, D.C. At the same time, "we also know more about how to help people quit than we did five years ago."

Thursday, December 16, 2004

Grades are done and turned in :)

Just wanted to let both classes know I have turned in all of the grades and they should be available to you via (I think!).

Thanks again for a fun semester. I was very happy with the performance and improvement we saw.

keep in touch! jim

Tuesday, December 14, 2004

update on correcting

First the good news: the Finance 401 grades (both classes) are done and submitted electronically. :) but they took longer than expected.

The bad news: MBA 610 grades will not be done until tomorrow. SORRY!!! I am still working on the problems and essays. Virtually no way they will be done before midnight. I have several things to do between now and then. I will work tonight on them again. Hopefully early afternoon tomorrow.

will post class averages etc for both later...

time to run...

How is correcting going?

I have had a few students ask about grades. Short version, I hope to have grades done tonight.

I am done with the first section of 401. I just finished the essays and short problems from the second section. I have not done 610 yet, but given that there are only 16 students, I should be able to finish that this afternoon.

So, IF things go as planned, grades should be done this afternoon. Of course things never go as planned,

Thanks for a fun semester!!! And Happy Holidays!!!


Wednesday, December 08, 2004

401---What new chapters?

I was asked what new chapters are on the test.

The answer? Chapters 33, 34,35.

The first version of the test is done!

I would say it is easier but no one would believe me anyway.

It is fairly long of course.

Good luck!!!!

Tuesday, December 07, 2004

What business classes (finance classes) can teach us

I am always nervous about the first and last classes of the year. So I wanted to write out some notes for today’s class. When I began typing I just wanted to recap what the semester. But that has been done before. So I guess these are either the some of the notes to the last class or to the first graduation address. Or both!

Congratulations. You have made it. Ok, so maybe it is not graduation time yet, but you are getting there. And minimally you have made it through all but the final from this class.

So I started out with the intent to write about what finance teaches us about life in general. But then I decided to open it up even further. So this entry is what have we learned in the business classes and how can that be incorporated into our every day lives? Consider it your first graduation address.

Accounting: In accounting classes we learned the importance of having checks and balances. We learned how to read a balance sheet and that every event has positive and negative aspects (i.e. you debit some accounts, while crediting others).

Statistics: From Stats classes we learn that few things in life are certain. Therefore, the best we can do is to “play the percentages.” We also learn to make informed decisions.

Economics: Arguably economics is the most all encompassing of any of the classes we have taken. Indeed Finance is just applied economics. So to list everything we learned would take a long time, but a few of the key things we learned: Specialization makes society better off. Free trade makes both sides better off. People maximize their own utility. Things at the margin matter!

Management: Management classes tend to fall into one of two camps. One stresses the interpersonal skills necessary to be a manager. The other camp is more number based—the so-called management science. We learn much from each. From the former we are reminded that leaders are important and that how we interact matters. From the latter, we learn to be efficient, to look for ways to continually improve, and that by basing decisions on quantifiable things we can do things much better.

Marketing: We learned that it is not just what you know, but how you come across. We learned that reputation matters and that psychology is important.

Business Information Systems: In BIS we learned that you have to be technologically competent. We learned that systems are only as good as what you put into them and that systems are only as good as their weakest link.

Finance: Finance is in many ways the key holding all of this together. Finance, in the terminology of economists, finance helps to aggregate all that we have learned in other classes. But finance is even more than that. In finance, we learned

  1. that compounding is very powerful. Let it work for you and not against you. This means to save early, save often, and save regularly.
  2. that taxes and transaction costs matter. Therefore take advantage of tax advantaged investment accounts and watch excessive fees and trading costs.
  3. that markets are pretty efficient (although maybe not perfectly so). This means that there is no free lunch so when things sound too good to be true, be skeptical.
  4. that too much debt is a bad thing. Financial distress does not just happen to firms. Be careful about borrowing. Used correctly, debt is a great tool. Used incorrectly, it leads to many problems.
  5. that governance matters. Just like by structuring contracts differently can influence a firms’ market value, so too our own governance influences our returns.
  6. that luck sometimes is good and sometimes bad. Plan for the worse, but hope for the best!
  7. that investment is important. So invest in your assets—all of your assets. Your assets include your investments (stocks, bonds, mutual funds, etc), tangible assets (real estate, baseball cards, car, etc), and intangible (reputation, goodwill, your friends, your health, your mind). What does this mean? It means that while you care for your bank balance, your real property, don’t forget your friends, your family, your health, and your reputation. Sure it may not always be fun—(driving to see a sick friend never is), but do it anyways! (see next item)
  8. to think long term. Not only is most of a stock’s value derived from long term growth, so too is our value. The Enrons, the Worldcoms, and others forgot this. Sure you may have to pass up some things you want, but in the long run you will be glad you did! (indeed, drug addicts have some of the lowest discount rates known: they discount the future for short-term gains.)
  9. Both diversification and specialization have their places. On one hand specialization allows us to be very good at something. However, in a constantly changing world, too much specialization can be very risky. Moreover, too much of anything will lead to staleness (and often is bad for your health too). So have varied interests, be willing to learn new things, and never stop learning.
  10. that there are many ways increase utility. Money is not the only thing that makes people happy. People are REMMs and care about all things. More money is good, but so too are more free time, a better standard of living, and a clean conscience. How you draw your indifference curves is a personal decision.

    To these, I would also add the importance of
  • staying confident—many of you sell yourselves short. Both collectively and individually. I am not sure if it is a function of going to a small school, or not. But you should not sell yourself short!!! IF YOU WANT IT TO BE, the education you get here is every bit as good as you could get at any school in the world. Too many of you use “it is too hard” or “no one else is doing it” or “I can’t do it” as an excuse. You can do it. You just have to want to do it!
  • never get too worried about money. Yes, it is money. Yes, it matters, but only to a degree. I’ve seen too many people destroy themselves (physically and mentally) over money. Do not let it happen to you. This may mean some advanced planning and might mean you do not have the fanciest car, or the largest TV. But who cares? Along these lines, the best definition of wealth I have ever heard is Wealth = monetary wealth / wants.
  • staying active. Both physically and mentally. It is way too easy to stop. Don’t stop! Learn something new every day. Read, risten, take classes. Do some physical activity every day. Run, bike, walk, you name it! But to quote Nike, JUST DO IT! You will be glad in the long run!
  • having fun! Life is too short to not have fun! Find hobbies that you like doing. But also at work. Remember: Work should be enjoyable, not something you have to do!!! as Anthony Annuziado said in our class: find a job you love and you'll never have to work a day in yout life!

    See, I told you finance was everything :) Good luck and keep in touch!!! jim

Monday, December 06, 2004

Finals Times 401

On Thursday December 9th at 1:10 for the T,Th 11:30m class
On Monday December 13th at 1:10 for the T,Th 10:00am class

The test will be in the classroom. You are allowed to bring in a cheat sheet front and back. Tomorrow in class there will be a sign up for those who wish to take it opposite their scheduled time.

The next time you are feeling sorry for yourself!


Kyle Maynard Official Website - Inspirational wrestler from Georgia Kyle Maynard

The next time you find yourself feeling down or sorry for yourself, check this site out...

He was on CNN (Larry King Show). Absolutely amazing!

Sunday, December 05, 2004

answer key MBA 610

As promised: (BTW not sure why formating won't work)

5. throw out
9. d
11 e
34. c
35. c


Thursday, December 02, 2004

Multiple Choice Answer Key Test 2

As Promised....

Multiple Choice





27. D




















9. A

34. B



35. A


11 B








































Importance of networking

CollegeJournal | Search Strategies: "Between Thanksgiving and New Year's provides the free time you need to start building a group of supporters and advisers -- your network-- that will help you with your upcoming job hunt "

The Wall Street Journals' College Journal has a good article on the importance of networking.

Some highlights:

"Although networking doesn't come naturally to everyone, it's a skill you'll use for the rest of your career, says Wayne Wallace, director of the University of Florida's career center in Gainesville. "It takes a little bit of work, and that's what differentiates the people who are willing to do it," he says"

"Lance Choy, director of Stanford University's career-development center. Typically, these are relatives, friends or people you know through friends. You will feel less awkward around them, and if you're nervous, they won't mind. Starting with them will help you be more polished for later meetings.
"Students have a sense of dread about networking," says Hoffman. But if you start by talking with people you already know, it'll come more easily, she adds....Choy suggests heading to the career center at your school to gather names of contacts from the alumni database. Most universities have programs connecting students with alumni who are willing to help with career issues. Career counselors can provide contact information."

The full article

Wednesday, December 01, 2004


I have had a couple of people find math errors on the grading of the test...please please CHECK this!!!! Bring any errors to class and I will make necessary corrections.

The multiple choice answer key will be posted tomorrow.

Also look for an upcoming Finance Club meeting. Probably Friday at 12:30, but I will let you know for sure when I hear.

Thursday, November 18, 2004

Free practice GMAT, GRE, MCAT, LSAT etc.

If you are thinking of attending Grad school, you will almost assuredly have to take the a standardized test for admission. Now through the magic of television (ok, so it has nothing to do with TV, but I have always wanted to say that), you can take a FREE practice test for many of these standardized tests.

So why not take a practice test over break?

You can also take practice LSAT, GREs, and MCATs.

CollegeJournal | On the Job

Students at smaller schools (like SBU) often feel they are at a disadvantage in the job market. The WSJ helps to refute that view.
CollegeJournal | On the Job: "Research suggests that attending a prestigious school doesn't make a person more likely to be successful professionally "

My take on this is simple: yes it may be harder getting the first job coming from a small school: you may have to knock on a few more doors and send out a few more resumes, but after that, it is performance that matters!

BTW I have said before and will say again, the quality of education you get at Bonaventure really is top notch. I have friends at many of the top ranked schools around the world and the material we cover in class is identical in many cases and often we are ahead of them! So be confident when you hit the job market!

BTW this comes from the CollegeJournal a part of

Tuesday, November 16, 2004

Extended lab hours

Given our test on Thursday (6pm) lab hours will be extended this week. I think they are going from 6 to 9 on Wed.

If you have any questions, contact either Adam or Chris

from Adam:

For all of you that are in Advanced Corporate Finance, Chris Zimmer and I will be down in the SIMM conference room in the basement of Reilly (room 29) from 7-9 tonight. We will be available to answer questions and help study.
Thank You,
Adam Babcock

Monday, November 15, 2004

Updates to Finance 401 and MBA 610 pages

I just made quite a few updates to the mainpages for class. More notes etc.

For instance, capital budgeting notes, what is a stock index, more on the pecking order etc.

I am sure you are all THRILLED beyond words :)

Just to keep you all in the loop, I have started making the test. I gave up on the Bills and decided I could make test questions and watch New England score at the same time. What an ugly game!

Friday, November 12, 2004

Capital Budgeting

Capital Budgeting

Overview: Capital budgeting is the process of deciding what projects to do. As such it is just a means of doing cost-benefit analysis.
There are many capital budgeting techniques that firms can use. These techniques do not always lead to the same accept-reject decision, so it is necessary to decide what a good capital budgeting technique looks like.
NPV is the best. It is the standard against which all methods are judged. Properly applied and understood, NPV is almost everything in finance!

  • An ideal Capital Budget technique should:
    use cash flows and not earnings
    consider ALL relevant cash flows.
    account for the time value of money
    be able to correctly select among mutually exclusive projects.
    be have a consistent and easy to apply decision rule.
    if properly applied lead to higher shareholder value.
    be additive
    be relatively easy to explain

    Net Present Value (NPV)
    NPV is the best! It satisfies all of our criterion above. It is easy to use and will lead to increased shareholder wealth.

    NPV = PV benefits - PV Costs
    = Initial cost + PV(expected future cash flows)

    Internal Rate of Return (IRR)
    The discount rate that makes NPV equal to zero.
    See table 6.3 of Ross Westerfield and Jaffe
    If cash flows are not "normal" than problems: different IRR for every sign change.
    For investing :
    For "normal" cash flows: Accept the project if IRR > cost of capital on the project. Why? IRR> r is the same as NPV > 0.
    For financing:
    If cash inflow, followed by all negative, accept if IRR <>
  • Modified IRR
    Way around the multiple IRR problem is to combine the cash flows until only one sign change exists. (i.e. take present values and add positive and negative together.
  • Way around scales differences is to use incremental IRR. This involves finding the difference between the size of the two cash flows.

  • Profitability Index
    for normal cash flows PI = PV benefits / initial cost
    (that is PV of cash flows after the first cash flow)/ initial cost
    Some firms also use NPV/Initial cost.

    Benefit: good is rationing
    Disadvantage: still have scale problems--solution: use incremental cash flows
  • Payback:
    How many years it takes get the investment back.
    Example: project costs 1000, pays back 300 per year
    Payback = 3.33 years
    Problems: arbitrary cut-off, ignores all cash flows after payback, ignores time value of money, leads to short-term thinking
    Advantage: Easy!!! Managers like it.

  • Discounted Payback
    same as Payback period, but use discounted cash flows in stead of regular cash flows.

    Average Accounting rate of return---possibly my least favorite method!
    Example: accept a project is average Return on Assets is greater than some hurdle rate.
    Does not use cash flows, does not consider time value of money, has arbitrary decision rule.
    Only good things, is that it uses data that is already available and often times pay of middle managers is tied to ROI or ROA.

Wednesday, November 10, 2004

So what is on the 401 test?

I have had a couple of people ask what is on the 401 exam.

So, as near as I can figure: Chapters 5,6,7,8,9, 13, 17,18,19

which seems like more than I thought we had done...but looking at the material I think that is what we have covered.

Oh and of course the Anthony Annuziado's lecture and anything else we covered (and yes the blog is considered coverage. :)

Pictures from NYC

Ok, a little less serious!

Here are some pictures from the Finance Club's trip to NYC.

Pictures are coutesy of Rich Miller. THanks!

Job Opportunity with Met Life

On Monday November 15, 2004 Eric Bach (a former SBU finance student (graduated in 2002)) will be back on campus talking about his job. He works for Metlife as a Business to Business Employee Benefits Sales Representative.

Do not let the title sales representative scare you away. Many small businesses can not afford to have corporate benefits departments. They thus outsource this task. Eric is their contact with Metlife.

His presentation is at 6:00 in the RC (career services is handling the details).

He works out of Rochester but they are hiring for many regions.
His email is
Send him your resume or just email him to ask about the job.

He asked me to pass the following along.

Business to Business Employee Benefits Sales Representative
Small Market Sales Division Description:
MetLife’s Small Market Sales is a division dedicated to serving the employee benefit needs of businesses with fewer than 500 employees – a rapidly growing segment of the market. MetLife SBC provides a range of quality products and services through insurance brokers and MetLife agents. A Small Market Sales Representative develops and maintains relationships with these producers, and helps them deliver MetLife products and services that meet the needs of their small business clients. This involves meeting with insurance brokers and MetLife agents to promote our products and services and create interest in having them propose offers of coverage(s) to their small business clients.

Position Requirements:
MetLife recognizes that sales and marketing abilities are unique talents. We are looking for energetic, self-motivated and outgoing graduates with a record of achievement in school or business who wish to develop their sales and marketing skills in a challenging and fast-paced environment. All majors with a BA or BS are welcome. Each sales representative will be expected to obtain their respective State Life & Health License, Series 6 & 63 and complete a Health Insurance Association of America (HIAA) program consisting of 2 exams, after they have started employment.

What MetLife has to offer:
MetLife's goal is to have 100 million customers by 2010. We'll get there by relying on the power of relationships, by expanding our already wide array of products and services, and by making the most of an enormously diverse and talented workforce to meet the challenges of an ever-changing marketplace. This means an array of career opportunities for you.

We understand that ever present is the quest for the balance between what you do for a living...and living itself. We understand that there is life beyond MetLife - have you met life today?

The position offers a base salary during the first year. After the first year, an incentive-based compensation formula is used. The Employee Benefits Sales Representative is compensated with a competitive bonus plan and expense accounts. In addition, the company provides a full range of benefits including life, medical, dental, disability, 401(k) and retirement plans.

Dedication and motivation, together with the numerous resources MetLife offers, are a perfect combination for rapid growth and advancement within MetLife’s Institutional Sales organization.

Sales Development Training/Planning Program
The Sales Development Training/Planning Program is an intensive 12 month training program that focuses on gaining MetLife Core Product Knowledge. Through a mix of both classroom and on-the-job training that you will experience in a sales office, you will learn a wide-range of products and services offered by the Institutional sales division. Participants will concentrate on learning the Group Insurance Industry, including Dental, Individual Disability, 401k, Short and Long Term Disability as well as various other products and sales processes. This dynamic program is full of interactive exercises including product training, Professional Selling Skills, role-plays - live and videotaped, enrollment meeting presentations, and participation in “one-on-one” classroom and Broker discussions.

The Sales Representative will also participate in a mentor program for 12-24 months, following training. This program will be a great support that will provide targeted, individualized training and coaching.

MetLife is an equal opportunity employer.

Looking for a job? Have something your employer wants!

As Chris Kinslow told us in the Deutsche Bank information session, the best way to get a job is to have something that your employer wants. One thing that many employers may soon be wanting is expertise in coping with the changes that may come about with Social Security Reform.

McKinsey Quarterly has an interesting article on what the changes will likely mean to financial institutions. (The article is a bit dated in the sense it was written a few years ago, but since the discussion on social security reform effectively stopped on 9-11-2001, the material is still relevant!)

I would highly recommend reading it if you work (or are going to be working) at a financial institution.

Tuesday, November 09, 2004

Fama paper

I'll put this on the class page (I thought it was there), but just to let you know, here is the Fama reading on who issues stock

enjoy!!!! :)

Friday, November 05, 2004

Class code for those of you in my MBA 610 H-III class

The relevant info for the "clickers" will have to register at

Class Name: MBA610fall2004
Your Class Key: P5458Q316

Yahoo! News - Feds: Obesity Raising Airline Fuel Costs

Yahoo! News - Feds: Obesity Raising Airline Fuel Costs

As if the airline industry did not have enough problems:

"America's growing waistlines are hurting the bottom lines of airline companies as the extra pounds on passengers are causing a drag on planes. Heavier fliers have created heftier fuel costs, according to the government study."

Not sure how we can include this, but I had to share it. I guess under forecasting? If you are on the staff that is forecasting the fuel needs of the airline, you also have to include whether the plane is full of heavy people.

Thursday, November 04, 2004

Class notes from Anthony Annunziato's lecture

For those of you who missed the presentation of Anthony Annuziado, here are some of my notes on the presentation.

NOTE: they are my notes, and not in absolute order or in his exact words, but the meaning of his comments are the close to his as I could make them.

Todd Palmer introduced Anthony Annunziato as a 1971 Bonaventure graduate and a successful energy trader.

Anthony said that the key to trading is understanding Supply and Demand and the flow of capital.

People often do not understand economics. For instance in the late 1970s people thought oil would be over $100 a barrel. However, this would have forced people to give up eating had their oil consumption remained the same. Of course, high oil prices led to lower Quantity demanded and more supply.

On Corporate America:

Large firms are not creating jobs—on net (when you consider their takeovers of firms and subsequent layoffs of employees, it may be better to look for jobs in small and medium sized firms.

CEOs and management in general have an egotistical view of themselves; they do NOT add as much value as they think they do.

One definition of management: Management is there to protect the firm from a few.

He feels that this definition is all too often correct and has many implications. For instance: Many do not reward good ideas and hard work. Want you do not shake things up. This bureaucratic mentality leads to inefficiency and no growth.

To too many people, risk management is risk avoidance. Risk and return goes hand in hand. Especially problematic when lawyers get involved.

On Competition, the job market and other things:

We now live in a global world. Competition has increased. Must consider how do we add value?

America was build on risk taking and entrepreneurial spirit. We still are way ahead in this area. Not so much in other areas. We do have best college system and finance system, but acquiring intellectual capital is relatively cheap.

Competition for jobs will keep hourly wages down. Outsourcing etc is here to stay.

Saving and investing grows in importance as hourly wage drops. Let money work for you!

To paraphrase: a rising tide raises all ships, but when the tide is not rising, you have to take risks and paddle for yourself.

On Enron

Bad ethics and much pandering to Wall Street.

On the supposed deregulation of utilities

Deregulation is overstated. No one has real incentive to end regulation. For instance, regulators do not want to deregulate themselves out a job. Most utilities do not want to have to compete. In fact probably cannot compete…See airline industry. New carriers know business and compete, older carriers can not.

Consequently, we see in the press that there is deregulation, but in reality there is not as much as we may be led to believe.

California "Energy Crisis" caused by several factors. California refused to build new electric generating facilities. Demand increased. Prices charged were capped, but prices paid by utilities were not. When they needed energy and had to go into the market to buy it, prices were high (they had not hedged). This buy high, sell low problem led to many utilities rescinding on agreed upon contracts with government's blessing. This has led some firms to vow not to do business in California.

On Energy supply and alternative energies

Right now demand = supply. Problem many feel demand wil continue to grow at a rate that is faster than production can increase. Hence price rise. Which will slow demand.

currently no alternative fuel is economically efficient. Maybe 15-20 years down the road, but right now no Alternative fuel will have to be brought forward by entrepreneurs.

On Investing

People just out of college should try derivatives. Yes you may lose money since you do not know what you are doing, but you do not have that much to lose.

On taxes and government

Government's job is to keep people safe. Other than that smaller government is better.

Taxes in NYS are much higher than elsewhere. This is one reason why firms are leaving (have left).

People can spent their money better than governments. Government bureaucrats do not understand business, customer service, etc. Yet think they know how to put money to best use.

On Jobs

Always better to work on the revenue side than the expense side of a business because better job security.

"Find a job you love and you will never have to work a day in your life."

He loves trading. It is a like a game. Objective score keeping and near instant gratification.

You can not be ruled based. Must continually grow. If doing the same thing, the same way as five years ago, you are in big trouble.

What is a Good day?

Dr. Palmer asked what a "good day or a bad day" was. TO this the answer was that he had made or lost $5 million in a day. But then went on to say a good day is most every day. A year ago he was paralyzed. Spent 17 weeks in the hospital. The experience of learning to move again makes him (and I think everyone present) appreciate what gifts simple things are (such as moving your arm or fingers or walking) and how awful they would be to lose. THese are things we often overlook until they are gone. Moral: take time to appreciate them now.

He concluded with the idea of being the best you can be. (without saying the exact words)

Pick something you like, and are good at, and have fun. To do otherwise is to waste and to waste is wrong an economic sin.

Life is too short to take advantage of people. Treat people fairly , help others, and reward others and we will all be fine.

Class ended at 12:42 to applause as we all thanked Mr. Annunziato for his time.

As Promised, the visual Correlation coefficient

Correlation coefficient Sorry this is late, I forgot about it to be honest with you.

It is very cool and shws how the eye is actually horrible at finding correlations.

Also it is a very good description of why using the wrong stat can lead to the wrong conclusion.

Some observations on the Power industry

This is from a paper I did on the Springfield Power company. Depending on what is talked about tomorrow in class when we have Mr. Anthony Annunziato speak, this may or may not be useful.

However, even if it he does not speak on this, I think the recent history of the utility industry is really something everyone (and not just finance majors) should know about to uderstand some of the controversy about power shortages, outages, and regulation.

Sorry it is a bit long:


The electrical utility industry traditionally has been seen as a natural monopoly where high fixed costs serve as an economic barrier-to-entry that prevents more than one firm from being able to survive economically in any given market. Because monopolies have the ability to use their market power to earn abnormally high returns at the expense of their customers, utilities in many countries have been highly regulated. In the United States, this regulation was done on a state-by-state basis. Typically, it involved a regulatory board, which in consultation with the firm, users, and other citizen groups, set rates and approved large expenditures.
To avoid the restrictive, low-return environment of the regulated power business, many utility firms created unregulated subsidiaries through which the firm could run businesses outside the reach of state regulators. However, this type of organization occasionally proved problematic for shareholders. If the unregulated business did well, regulators might expect the earnings to be used in the regulated utility and thus reduce allowed rates in the regulated business. On the other hand, if the unregulated business did poorly, the regulators would not allow these costs to increase the utility rates. Thus, some analysts argued that shareholders were doomed to a “lose, lose” situation whenever regulated utilities diversified. Springfield Power was well acquainted with this cross subsidization problem. The firm had recently won a 3-2 decision whereby state regulators had ruled that the VirtualAmerica subsidiary was able to keep separate from the regulated SPU utility business the money it received from AT&T for allowing the use of its transmission towers.
To prevent this negative cross-subsidization problem, most utility industry officials favored ending regulation. In return for this concession, the utilities would end their monopolistic position and allow the free market to decide prices and dictate winners and losers. Starting in 1980, much of the global business world went through a U.S.-led deregulation wave that was built on the theory that allowing market forces to act would give market participants incentives to find better ways to lower costs and improve efficiency.
In the United States, utility deregulation was made possible by the Federal Energy Policy Act, a 1992 Federal law that forced utility companies to allow energy created by other firms to travel through each other’s distribution channels. This, in effect, created a national power grid that enabled the delivery of electrical energy across markets, and made possible the separation of energy creation and energy distribution. This separation ended the monopoly situation and, consequentially, the need for regulators to set prices. Once the infrastructure was in place, utility deregulation spread across the US.
While each state adopted its own rules governing deregulation, the general framework was that utility companies and state regulators would allow customers (first industrial customers and later retail customers) to shop around for power just as they did for long distance or other products or services. It was expected that this competition would improve incentives, lead to greater efficiencies, and lower costs. While many of the benefits of deregulation would take years to develop, a predictable short-run consequence of national deregulation would be more standardized prices. Additionally many environmental groups feared that price competition could lead to environmentally destructive behavior. As a result, consumer groups and environmental groups lined up to oppose the deregulation.
On the other hand, utility executives, large power users, and shareholders generally supported deregulation. The reasons varied, but each group felt that deregulation would improve its own position. For example, large users expected they would be able to negotiate better rates if there were multiple energy providers. Many executives reasoned that their importance would grow with the greater discretion that would come after deregulation. With this increased importance, managerial pay was expected to increase. Similarly, because of the increased flexibility, deregulation was seen as increasing firms’ cash flows and hence shareholder returns.
In 1997, the utility deregulation debate came to Springfield. Not surprisingly, SPU officials and large power users were the chief advocates while opposition consisted of grass-root groups who feared rising prices, environmental damages, possible employee job losses, and increased volatility of energy costs. After much last minute lobbying, Springfield’s pro-deregulation camp prevailed and the Electric Utility Customer Choice Act (Bill BS390) was pushed through both houses of the legislature in late April and signed by Governor Quimby in early May 1997. Under this new law, industry regulation would be phased out over the next 5 years with regulations on the residential market being the last to be dropped.

Is it the end of another anomaly?

It sounds like another anomaly is solved. SUre it has nothing to do with finance, but we talked about it in class the other day)...why did we talk about it? To suggest that anomalies are just things that we currently do not understand and that eventually today's anomlaies may well be solved.

"Gulf war syndrome may have been caused by exposure to the nerve gas sarin, according to reports.
The New Scientist journal has reported a leak of a US inquiry into the ill-health of veterans of the 1991 war.
The US Department of Veterans Affairs' Research Advisory Committee on Gulf War Veterans' Illnesses is due to publish its findings next week."

Wednesday, October 27, 2004

Anthony Annunziato

Anthony Annunziato to speak to Finance 401 on November 4, 2004

Mr. Annunziato is President and trading principal of AAA Capital Management Inc. He began his involvement with commodity futures on the Chicago Board of Trade during the early 1970s. For over 20 years at Smith Barney (SB) and its predecessor firms, Mr. Annunziato has provided energy futures brokerage services to a wide range of commercial traders and individual investors. He began trading individual commodity accounts on a discretionary basis in 1984. Mr. Annunziato is presently a Senior Vice President of Investments, Commodity Futures Sales at SB. Since 1991 he has also operated privately held companies which make energy related investments with proprietary funds.

Mr. Annunziato graduated in 1971 from St. Bonaventure University with a BS in Business Management.

He has worked with

AAA Capital Management Inc. Houston, Texas (March 1997-Present)
Smith Barney Inc., Houston, Texas (January 1984-Present)
E.F. Hutton, Houston, Texas (July 1979 - December 1984)

I am sure you will find the presentation both interesting and informative.

Tuesday, October 19, 2004

Office hours, NYC trip, etc

Hi everyone...

A few announcements:

I have a meeting at 1:15-2:10 on Tuesday. I will have to miss the beginning of office hours. I will get back as soon as I can. I am sorry about it.

Because of the night exam, we will not be having class this Thursday (when the Finance Club is in NYC).

Now is the time to begin your job search for next year! Be sure to be actively looking. Have your resume completed and be watching career services for anouncements. Also posting it online can not hurt!

Tuesday, October 05, 2004

Make-up tests--new policy

new policy on Make-up exams

I am pretty sure the Dean was talking to me in this email!

(Barb O'Keefe is our secretary)

In the past, many of us have routinely left make-up exams with Barb O’Keefe to
administer to students at their convenience. While Barb is glad to provide that
assistance, our continued reduction in available free spaces in which to conduct
make-up exams has made the administration of unscheduled make-up exams
increasingly difficult.

To ease the burden on Barb, as well as to ensure that there are appropriate spaces available to our students to use for completing their examinations, I would like to request the following:

Please check with Barb before scheduling make-up exams that you would like her assistance in administering. Barb can then ensure that there is adequate space available at the scheduled times, or suggest other times in which space will be available. If make-up exams must be scheduled for more students than can be accommodated in the available space in Murphy at a single time, you may need to schedule a classroom for the exam, and make appropriate arrangements to proctor. Even if you are planning to administer a make-up exam yourself in one of the available spaces on the 2nd floor (e.g., the “printer room”), please be sure to check with Barb; she will keep a schedule of when that room is in use so that we can avoid scheduling conflicts.

what this means: no more take the test whenever...expect there to be a single time only. One solution may be to allow students who can not make a test (or the single makeup time) to add the points to the final.

Test will not be done in time for class

Sorry...I tried, but I am not going to make it on the tests...we will have to wait until Thursday...



Sunday, October 03, 2004

Pro forma assignment

due to popular request, the project will not be due until AFTER break (Tuesday)...

I hope this takes some pressure off for your tests etc.


Tuesday, September 21, 2004

More from Career Sevices

Dear Faculty Member,

Please encourage your students to attend this highly relevant and important career program occurring next week:

Monday, September 27**
5:00 - 6:00 p.m.
Murphy Aud A&B

A professional HR representative who hires for accounting and finance-related positions will share his "insider information" about best (and worst) practices during interviews.

All students are welcome to come to this program to learn more about what the interviewing experience will be like when applying for Accounting/Finance-related positions. (Students involved, or interested, in upcoming On-campus Recruiting opportunities should most definitely attend this skill-building program.)

Email; Stop in room 216 RC; or Phone 375-2384.

We look forward to seeing you at this event!
Renee' Caya-Bizzaro, Assistant Director, The Career CenterRoom 216 Reilly Center, P. O. Box 119St. Bonaventure University, St. Bonaventure, NY 14778Phone: (716) 375-2355 Fax: (716) 375-2381Email: Web:

Monday, September 20, 2004

Bill Richter Presentation--From Mike Fischer

I just received the following:

Thanks for your assistance in making the arrangements for Bill Richter to present to your FIN 401 students (and, of course, any and all others who might be interested!).

I wanted to confirm the arrangements, after numerous changes: the presentation will be from approximatley 10:30 to Noon (including time for Q & A, etc.) on Friday, October 1st, in section C of the Murphy Aud.

Career Services

I know it seems early, but now really is a the best time to be looking for a job or internship.

Whiel we do not get as many recruiters to campus as some larger schools, we do get quite a few. I HIGHLY recommend taking advantage of what Career Services has to offer!

Wednesday, September 15, 2004

The National Commission on Writing - Press Release

The National Commission on Writing - Press Release

Why pay attention in English classes? Why read books? One reason is to improve your writing.

In a recent survey (released yesterday) business leaders made it known that "two-thirds of employees, both current workers and new hires, meet writing requirements. While lackluster writing skills do not necessarily impede success in all realms, more than half of the companies surveyed reported that they assess writing in hiring and promoting salaried employees."

"Writing is both a 'marker' of high-skill, high-wage, professional work and a 'gatekeeper' with clear equity implications," said Bob Kerrey, president of New School University in New York and chair of the Commission. "People unable to express themselves clearly in writing limit their opportunities for professional, salaried employment," he said

Sure the survey is no doubt biased (did you really expect the National Commission on Writing to conclude that writing was unimportant?!), but the finding is consistent with everything I have ever seen on the topic and it can serve as a valuable reminder to all of us.

Tuesday, September 14, 2004

Office hours for the next two weeks

A few changes are necessary for office hours. Because of today's 3:00 PM presentation (by Paul Astorino), office hours are canceled. They will be tomorrow instead from 1 to 4.

On next Tuesday (September 21st), I have a board meeting that I have to attend in the afternoon. (I will leave after class). So next week my regular Tuesday office hours will be on Monday instead.

Of course, you can always just set up an appointment or email.

Monday, September 13, 2004

Paul Astorino

Just finalized things with Paul Astorino

He will be speaking in classes at 10 and 11:30 on

1) Stock Price and Assets
2) Global business
3) What is Sports Marketing? How it fits with finance
4) Maxims (this is the part that he will tell you to be solid corporate citizens)

He then will be speaking again at 3:00 in Murphy Aud. This is open to the public. The topic will be more focused on sports marketing, but would also tie in the points from his class presentations.

Deutsche Bank and other things from Career services

I was asked to announce the following:

Dear Faculty Member,
Please inform your students of the following opportunities sponsored by the Career Center this week. Your assistance is very much appreciated!

Wednesday, Sept. 15
7 -- 8 p.m., Murphy Aud Section C

ALL students are invited to attend this program to learn more about employment opportunities with Deutsche Bank ( Those interested in participating in future, on-campus interviews with this company should most definitely attend!

All sessions will take place in Room 216 RC.
Tuesdays 4 -- 4:30 p.m. (except Sept. 28, 2:30 - 3 p.m.)
Wednesdays 12:30 -- 1 p.m.
Fridays 1 -- 1:30 p.m.

Attend one of the scheduled recruiting orientations to find out how the on-campus process works! All relevant questions about who is eligible to participate and how to do so will be covered. This is a mandatory requirement for students in order to be eligible to interview with employers on campus.

Check the Career Center's On- and Off-campus Recruiting web page for details about companies coming to campus, resume-due and interview dates. You can find it at

Thank you,
Renee' Caya-Bizzaro, Assistant Director, The Career CenterRoom 216 Reilly Center, P. O. Box 119St. Bonaventure University, St. Bonaventure, NY 14778Phone: (716) 375-2355 Fax: (716) 375-2381

Friday, September 10, 2004 The Art Of Pitching The Art Of Pitching

Whether you are going for a job interview, trying to raise money for a business venture, or in sales, presentation is important. You could do MUCH worse than listen to the ideas of Guy Kawasaki.

Short version: stay to the point, be entertaining, and don't ramble needlessly.

Tuesday, September 07, 2004

Deutsche Bank Interviews

Deutsche Bank is coming to SBU on Wed 9/15/04! Details to follow, but you definitely want to have a resume ready!!!

Finance Lab times and location

The Finance Club is sponsoring a lab that will provide finance class help for students.

The lab will be on Wed from 7 to 8 (pm) and on Thursday from 6pm to 7pm. The lab will be in Plas 210 each day.

I highly recommend that you go if you are having any questions. I can not say strongly enough that the lab instructors (Chris Zimmer on Wed and Adam Babcock on Thurs) are excellent.

If you have questions, contact Adam at

Wednesday, September 01, 2004


I think the clickers are now working again. As far as I can tell the problem is now fixed and the class is not expired. :)

Tuesday, August 31, 2004

FInance Club meeting

Want your resume to stand out? Want to make contacts in the financial and banking world? Join the Finance Club and be noticed by recruiters. All Students are invited to the organizational meeting of the Finance club. The meeting will take place on Friday September 3rd at 12:30 PM in Murphy Auditorium, section C. Please bring $5 for dues and a calendar to mark off important dates. If you cannot attend this meeting and would like to join or if you have any questions, please contact
Richard Miller:

Tuesday, August 24, 2004

How to register for clickers

Hi, I have had a few people ask how to register for clickers so:

  1. Go to and then click through to the student tab (on top) (be forewarned, Einstruction has been having server trouble of late so it may be slow.)
  2. In a new window, you will be asked what school you go to (select St. Bonaventure from pull down window.)
  3. You will be asked to select a course and input serial number of the clicker.
  4. The class codes: for the 10:00 AM section: X2999U447. For the 11:30 AM section the code is T5454V213.
  5. If you do not have the enrollment code/license number from the text, you will have to purchase an "enrollment code" at this point

I think it will be pretty self explanatory. I just walked through it and if I can figure it out, I am sure you can as well!

Monday, August 23, 2004

Finance Club Golf Outing

While the first Finance Club meeting will be next week, look for announcements, but for now:

The 1st annual Finance/Alumni Golf Tournament will be held on Saturday September 18, 2004 at Elkdale Country Club in Salamanca, NY. There will be a reception after the tournament in the Hall of Fame room in the Reilly Center where students will be able to talk with Alumni. For more information please contact Adam Babcock at

Tuesday, August 17, 2004

Introduction to Blogging

I included the following in the newslettter, but since some of you may not have been reading the newsletter, I thought it might be useful to include here as well.

What is a blog? A blog is nothing more than an easy to update website. This has taken the idea of a journal. (for example, :
“A blog is basically a journal that is available on the web. The activity of updating a blog is "blogging" and someone who keeps a blog is a "blogger." Blogs are typically updated daily using software that allows people with little or no technical background to update and maintain the blog. Postings on a blog are almost always arranged in chronological order with the most recent additions featured most prominently.”

What makes blogs so cool?

Blogs are
1. easy to use.
2. often informal
3. can be read either online with a typical web browser or with special readers.
4. links can be saved (so rather than saving the whole newsletter, you can link just to the stories you want!)
5. are immune to spamblockers

For example, to read the blog with your browser, merely click through to it like you would any web site.

But it can also be read with a special reader. Why is this so valuable? Because the reader will go and “get articles” whenever the site is updated. This allows me to update the blog on an almost daily basis and you can select which stories you want. This is called syndication. Moreover, since your reader is getting the article, you have made it around the spam blocking software.

I have provided links to sign up via ATOM, RSS, or through your “my Yahoo” page. There are several free RSS readers and while I do not pretend to know which is best, I use RSSReader from and it very easy to use.
Here is the list from Google:

Thursday, August 12, 2004

Finance 401 Syllabus

Finance 401 Syllabus

As promised the syllabus is now online!

also I just looked and there are still a few seats left in each section, so tell your friends :)

BTW this weather is so bad! Feels like late September already!

Tuesday, August 10, 2004

Thursday, August 05, 2004

Finance Club trip to NYC

I have spoken with the alumni office and the finance club trip to NYC is tentatively scheduled for October 21st and 22nd.

As Steve (err Dr. Horan) is busy with overseeing the student run investment portfolio and his move to Olean (he got married this summer), I will be the faculty contact person on the trip. Which probably means no Friday night stay.

More details will follow both here and at Finance Club meetings. Stay tuned :)


who just got a "new" desk ;) someone was throwing it out (literally--it was out by the dumpster) and two desks just fit in the office :)

Text and web page for class

Fin401mainpage: "Finance 401 Advanced Corporate Finance "

I have had a couple people ask me already what text etc we will be using. So here goes:

The text book is Brealey and Myers Principles in Corporate Finance. The newest edition. I think it is the 7th. I apologize up front for the price, but I can make it a bit better by telling you that we will also be using it for 402 and I highly recommend that you keep it for either other classes or for the real world as a reference. It is VERY good.

In addition to the text you will need a "clicker" and license. You will have to purchase it through the bookstore. In fact think you may get a discount if purchased together. I am not sure. The "clicker" is less than $5 and the license is about $15? So plan on about $20 additional. (this is needed even if you plan on sharing a book) Want to know what a clicker is? Check out They will be used in class. Details to follow.

I am also highly recommending (but not outright requiring) a WSJ subscription. I will talk more about it the first day of class. My thoughts on the WSJ are that it is simply great and a tremendous source of information. While it does require some time commitment, the level of writing (and thought) is vastly superior than what you will find on most TV shows or even in most popular newspapers. But because I will be having you reading quite a bit (text, blog, newsletter, papers), and the NY Times is available on campus for free, I am not requiring it.

Also the new 401 class website is up. It is not yet complete, but it is better than nothing.

What is expected from you in class?

I have been told that I ask too much of students. I do not think so, but I guess the reputation is not totally without merit. I do ask that you keep up with the reading and to think. I hate pure memorization and try to challenge you to think and apply the material.

Overall, I expect you to have fun, but to work hard. I will if you will. ---LOL...

Welcome to Class :) Or at least to the class Blog

Hi Everyone!

After finding out how much easier updating a blog is than having to update the website manually, I have decided that this blog will be used for class announcements, comments, etc. Of course the FinanceProfessor site will still be used for notes and other things.

For those of you who have had me before you should know that class is continually evolving and I am pretty flexible and willing to give up something that is not working, so this is all liekly to change, but the way I envision this working:

Suppose you want to know

I understand that this method of class communication will be slightly different than what you are used to, but I really do think this is the way classes will be done in the future.

In some ways I am recognized in this area. My working paper How to Use the Web in a Finance Class: A Web Enhanced vs. A Web-Centered Model was one of the early works that tried to explain how to use technology in a finance class room and I have participated in several FMA Roundtables on Using Technology in the Finance Class Room.

Through the site and at these Roundtables, I have had the opportunity to meet with some of the best finance teachers in world and to have seen some of what is being used at these Univeristies. I do believe that we are at the forefront of this movement. But with any new technology, some things will work and some will not. I encourage you to let me know what is working. I will try very hard to incorporate more of what is working and drop what doesn't work as well.

This semester (Fall 2004) I will be teaching two sections of Finance 401 and one section of MBA 604 (HIII). THis blog will be used for both.

I will post more shortly, including what text book we will be using, what is a blog, and much more.

But to close, I want to let you know that I think this will be fun and a great learning experience for us all!