Finance Exam

A great weight has been lifted. Last night was the final exam for my MBA Finance class. Those of you who know can understand why this class in particular would cause anxiety: it involves math.

Math and I have never had a close relationship. I guess you could say it has been strained from the start. It was always my least favorite subject in grade school, and in high school, with the introduction of Algebra II, Calculus, and Trigonometry, we degenerated into outright disgust and hatred. (Except for Geometry. I always liked that one.)

Finance was an interesting topic. It was interesting in the way that learning about the fundamental physics of the universe and how black holes work. When someone puts it in terms you can understand, and with the aid of an overhead projector and some pieces of clear plastic, you can almost feel like you understand.

However, when you are brutally put on the spot and asked to apply three months worth of learning in a single night, you realize that you know nothing. That all along you have been just nodding your head and scribbling in your notebook and LOOKING like you understand what’s being said… but finally the truth is revealed: you don’t have a damn clue.

That was the exact scenario I kept imagining. THen the professor was kind enough to post the questions from last year’s exam on the website. I downloaded them, opened them, and cried. I had no idea how to do any of them. The professor had even been kind enough to write brief outlines of how to get to the correct answers. I just stared dumbly at them. “Where’d he get this ‘200’ number from? What the hell does ‘ln’ mean? What’s this cross-looking symbol?”

See, once I graduated high school I thought that I could finally move on with the rest of my life without Maths of all kind. I went to a college where I enrolled in a Liberal Arts program and could neatly sidestep the entire subject of math by taking a science class. Great. Fantastic. But there’s no way around doing math in your MBA program. You just have to grit your teeth and bear it.

Of course, I left all my studying to the last two days. Then I cracked open the book. The reader. And last year’s test. And painfully worked my way through each of the issues, going over step by step, how each answer was reached. Three of the questions were going to be of exactly the same kind this year, and we were given the topics of the other two so we could prepare. A kind spirit in my study group also faxed me eleven pages of his handwritten notes outlining how he reached the conclusions from the sample test, which was a lifesaver, because there were so many shortcuts and steps left out in the version the professor gave that I routinely felt like bashing my head in with a hammer.

The day of the quiz came. I went to school three hours early to prepare. In my haste, I pulled out all the papers from my bookbag to make room for the huge tome of a textbook, the thick reader, my laptop (which we weren’t allowed to use but I carry with me as my security blanket), and about two pounds of candy. I got to school and then realized that I had left all my notes and papers and last year’s test at home. Brilliant.

Anyway, after an eternity, but still completely out of the blue, it was time to take the test. All 65 executive MBA students solemnly marched into the exam hall and took our seats. As usual, I had to borrow a pencil because I didn’t have one. I took out the book, the reader, some notes from other kind souls who let me photocopy theirs before the exam, and the financial calculator that I had borrowed that morning, and tried not to succumb to the urge to bolt for the door.

We got the exam, and I looked over the five questions, and fought down another wave of panic. They were similar to what was on the practice exam, but not exactly the same. Instead of solving for the NPV for example, we would have to solve for the interest rate. I had no notes for this! How was I supposed to do that! Did he actually expect that we had the mental agility to apply what he taught in class to figure out what to do! The nerve!

Feeling like an idiot, I pulled out the textbook and looked up the relevant sections. Good thing the test was three hours long. I put my head down and got to work. After forty minutes I had finished the first question. Hmm. At that pace I would not be able to finish them all. I entered a place of Zen calm inside myself and thus preserved my sanity and dignity for a few more minutes.

Luckily for me, the other questions were easier and required less tedious calculations. I even got that thrill of accomplishment a few times when I realized I was on the right track and knew that, with jut a few hundred more minor calculations, I was going to find the answer.

In the end I finished all five questions and had ten minutes to spare. I was ecstatic. I could hardly contain myself. The professor said that you could get up to 90% credit for each question provided you showed that you knew what you were doing and documented your calculations. As soon as we were allowed to speak again I got up and starting asking around: “Did you get 8.6% for the WACC? Did you say the Polish or the German investment had a better NPV? Did you get around 5% for the Black and Scholes question?”

To my amazement, almost everyone I asked had different answers for a few of the questions, so I knew I wasn’t the only one. And I had at least two questions right on the money, probably three.

Amazing.

I never again want to hear about Real Options, or the Weighted Average Cost of Capital, or how to calculate the value of a bond, or calculate the effect on stock price of a proposed merger. All that stuff is interesting in the abstract, and I’m glad that I know that it is possible for a mere mortal such as myself to learn all of that if I so desired…

…but if I never see another financial calculator in my life, it will be too soon.