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Mathematics of Finance I (ACTL90001)

Graduate courseworkPoints: 12.5On Campus (Parkville)

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Overview

Year of offer2017
Subject levelGraduate coursework
Subject codeACTL90001
Campus
Parkville
Availability
Semester 1
FeesSubject EFTSL, Level, Discipline & Census Date

Topics include compound interest functions; valuation of a series of payments, including where the cash flows and/or the force of interest are continuous functions of time; equations of value; loans repayable by instalments; characteristics of major asset types; and discount valuation of fixed interest securities, ordinary shares and property, including effects of tax; discount valuation of index-linked bonds and forward contracts; term structure of interest rates; duration and convexity; discounted cash flow techniques; distributions of accumulations and present values.

Intended learning outcomes

On successful completion of this subject a student should be able to:

  • Apply relevant pre-requisite mathematical knowledge in the solution of a range of practical problems;
  • Describe and apply the main methods of finding the accumulation or present value of money under simple and compound interest and discount;
  • Derive and apply formulae to calculate the accumulation or present value of a series of payments, including the cases of continuous payments and variable interest rates;
  • Analyse and solve equations of value for rates of interest;
  • Calculate rates of return on investment portfolios using methods employed by actuaries;
  • Construct and analyse a loan schedule, including cases when terms of a loan are altered;
  • Analyse financial aspects of projects using discounted cash flow techniques;
  • Explain the key features of the main types of financial assets, including shares, bonds, property and derivatives;
  • Perform compound interest calculations relating to financial assets, including the calculation of price and yield;
  • Calculate the delivery price and the value of a forward contract using arbitrage free pricing methods;
  • Perform calculations relating to the term structure of interest rates;
  • Derive results for simple stochastic models for investment returns, and apply these results.

Generic skills

High level of development:

  • Written communication
  • Problem solving
  • Application of theory to practice
  • Synthesis of data and other information
  • Use of computer software

Last updated: 16 August 2017