# Mathematics of Finance I (ACTL90001)

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## Overview

Year of offer 2017 Graduate coursework ACTL90001 Parkville Semester 1 Subject 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