F78AA Actuarial and Financial Mathematics A
Lecturer:G. Reid
Aims
This course aims to provide students with an introduction to
the basic concepts and models of financial mathematics.
Summary
- Simple interest
- Compound interest and discount
- Time units and effective rates of interest
- Accumulations and present values of discrete-time
cashflows
- Varying rates of interest
- Annuities
- Yields
- Measuring rates of return
- Loan schedules
- Fixed-interest securities
- Inflation indexing
- Discounted Cash Flows
- Nominal rates of interest
Learning outcomes
At the end of studying this course, students should be able
to:
- Describe the basic concepts of simple and compound
interest.
- Calculate the present value or accumulation of any set of
discrete-time cashflows, at constant or varying rates of
interest
- Derive and use simple formulae for values of level and
increasing annuities-certain
- Explain the concept of the yield on a series of cashflows,
and its limitations
- Calculate time-weighted, money-weighted and internal linked
rates of return
- Analyse loan schedules, including simple alterations
- Describe basic fixed-interest securities, and calculate
prices and yields allowing for tax
- Understand how an appropriate inflation index (such as the
Retail Price Index) may be used to measure changes in the value
of money with the passage of time.
- Understand how an appropriate index may be used to increase
the monetary amounts of the future cash flows associated with a
given `index-linked' investment and, in particular, how the RPI
is used to determine the future payments of interest and
capital associated with index-linked government
securities.
- Know what, in relation to a given inflation index, is meant
by the `real yield' for a particular investment and be able to
calculate such yields.
- Understand, the discounted cash flow model and know what
internal rates of return (IRR), net present values (NPV) and
break-even durations are
- Describe and calculate nominal rates of interest
Reading
McCutcheon & Scott is a required text. It is available
from the Faculty and Institute of Actuaries at a discounted
price. Zima & Brown is an American book and uses slightly
different terminology in places, but is a source of hundreds of
exercises and examples.
- McCutcheon, J.J. & Scott, W.F. (1986). An
Introduction to the Mathematics of Finance, Heinemann.
- Zima, P. & Brown, R.L. (1996). Schaum's Outline:
Mathematics of Finance (Second Edition), McGraw Hill.
Assessment
There will be a two-hour end-of-course examination, contributing 90\% of the total mark.
During the second half of the semester there will be an Excel-based assignment
counting for 10\% of the total mark.
Help
If you have any
problems or questions regarding the course, you are encouraged to contact the lecturer, Gavin Reid, in CM S19
Course web page
Further information and course materials are available on
Vision.
