Financial Mathematics (ACTU 371)

Aim of the course:

This course introduces the student to the concepts and procedures of the time value of money calculations used in Mathematics of Finance. It gives an understanding of topics in interests, annuities and perpetuities, loan with amortization and sinking funds methods, bonds and related securities.

 

Topics that will be covered in the course:

Chapter 1: Time Value of Money

Rate of interest, simple interest, compound interest, force of interest, accumulation function, present value, future value, discount factor, discount rate, convertible m-thly, nominal rate, effective rate, inflation, equation of value

 

Chapter 2: Level Annuities

Annuity immediate, annuity due, perpetuity, perpetuity, annuity payable m-thly, annuity payable continuously.

 

 

Chapter 3: Non-Level Annuities

Arithmetic progression (finite term-perpetuity),

Geometric progression (finite term perpetuity)

Other cash flows

 

Chapter 4: Loans

Term of loan, Principle, interest, outstanding balance (prospective and retrospective method), amortization method, sinking-fund method.

 

Chapter 5: Bonds

Definition of bond, price, book value, amortization of premium, accumulation of discount, face value, redemption value, yield rate, coupon rate, term of bond

 

Chapter 6: General Cash Flows and Portfolios

Rate of return, dollar-weighted rate of return, time weighted rate of return, current value, duration (Macaulay and modified), convexity, portfolio, spot rate, forward rate, stocks price, stock dividend, immunization

 

Methods of assessment of students cognitive skills

• Group assignments
• Short quizzes
• Mid-Term and final exams
• Class participation

 

Required Textbooks

1. Kellison, S.G., The Theory of Interest (Third Edition), 2009,
Irwin/McGraw-Hill, ISBN: 125921544X or 978-1259215445.

2. ACTEX FM Study Manual with StudyPlus+ Spring 2018, by:
Johnny Li, Ph.D., FSA, Andrew Ng, Ph.D., FSA

 

Electronic Materials

https://www.soa.org

http://www.casact.org/