MATHS 351: Mathematics of Finance (4)
Syllabus
1. Prerequisite: MATHS 251 and MATHS 165 or permission of the department chairperson. MATHS 166 is a co-requisite.
2. Course Description: Mathematical theory of compound interest, force of interest, annuities, equations of value, yield rates, amortization, sinking funds, bonds, market derivatives, depreciation, and current topics in finance.
3. Course Objectives: Students will learn how the theory of compound interest and the time value of money are used to compute the present value of future payments. Students will be able to calculate both the present and accumulated values of annuities certain, and the price of bonds and other fixed income investments. They will be able to construct loan amortization schedules under various payment schedules and interest assumptions. They will be able to set up equations of value to be solved for unknown yield rates, payment amounts, or payment times.
4. Course Rationale: The topics discussed in this course form the foundation of financial mathematics. Therefore, the course is a recommended elective for the financial mathematics option and the actuarial science major. It is a prerequisite for the actuarial science courses that involve valuation of future payments.
The material covered in this course is directly tested on the second of the professional examinations given by the Society of Actuaries and the Casualty Actuarial Society.
5. Course Content: Topics will include accumulation functions, simple interest, compound interest, the force of interest, compounding at frequencies other than annual (including continuous compounding), annuities certain with level annual payments, annuities with varying payment frequencies and amounts, calculation of the effective rate of interest and yield rates, equations of value, pricing of bonds, calculation of the amount of loan and sinking fund payments, the construction of amortization schedules, and market derivatives. Topics may also include depreciation, cost of capital, the study of random interest rates, and other financial topics of current interest.
6. Course Format: This course will be taught using lectures and discussion. Projects will be assigned, individual and/or group. Knowledge of spreadsheet computer software will be helpful. Many examples will be presented, including problems from past actuarial exams.
7. Methods of Evaluating Student Performance: Student evaluation will be based on in-class exams and individual or group projects. Assessment may also involve take-home exams, other types of homework, quizzes, and presentations. The evaluation and weight of these components are at the discretion of the individual instructor.
8. Evaluation of the Course: The instructor of the course is evaluated by departmental student evaluations and peer evaluation. The course is reviewed and revised periodically by the Departmental Undergraduate Programs Committee.
B. Frye, J. Foley, 1/2001; H. Fischer 10/2005, L. Baker 2/2007