Finance Students Are So Over Overcomplicated!
It’s that time of year. This month, people are fetching their Pumpkin Spice Lattes. Next month, turkeys will be running for their lives while runners sign up for local Turkey Trots. On campuses around the world, students are busy studying for midterm exams.
Photo by Brent Pritchard.
Here’s an excerpt from my book Would Your Boomerang Return? What Birds, Hurdlers, and Boomerangs Can Teach Us About the Time Value of Money (2023):
If you’ve ever participated in a race, then you know that there’s a total race time also called the chip time, and your average pace per mile. ROI is the equivalent of the total race time, that is the time from when your foot crossed the start line to when you cross the finish line. Do you see the problem with only providing someone with your total race time? When you sign up for a race you sign up for a distance, not a time. The time comes later. In this example, the only information this other person has is your chip time but no idea what distance you ran. For example, 5K, 10K, etc. Just as chip time is dependent upon distance, more information is needed to help someone make sense of the result.
On the other hand, i(RR) is like the runner’s average pace per mile. The average pace per mile provides information that can be interpreted and analyzed, regardless of the distance of the race. If the only race distance in the world was a one-miler, then the total race time and average pace per mile would be the same. But we know that foot races cover a wide variety of distances. Some are super short, such as a kids’ fun run, where participants are rewarded with cookies on the other side of the finish line. Race length goes all the way to ultramarathon endurance events covering 100 miles or more. Runners in these endurance events don’t usually have to wait until crossing the finish line to find treats, which are typically stocked at aid stations along the route.
Photo by Brent Pritchard.
Why do you think traditional finance textbooks are so overcomplicated?
Brent Pritchard is an author and college finance lecturer with over two decades of industry experience and cofounder of Boxholm Press, LLC, a family-owned-and-operated publishing company providing educational content, products, and services. He pioneers an innovative and approachable new way of learning and teaching the Time Value of Money as well as thought leadership in other business topics. His most recent book is Would Your Boomerang Return? You can contact him on his website here.