This module is not currently running in 2024 to 2025.
The aim of this module is to provide a grounding in financial mathematics and its simple applications. The idea of interest, which may be regarded as a price for the use of money, is fundamental to all long-term financial contracts. The module deals with accumulation of past payments and the discounting of future payments at fixed and varying rates of interest; it is fundamental to the financial aspects of Actuarial Science. The syllabus will cover: Generalised cashflow models, the time value of money, real and money interest rates, discounting and accumulating, compound interest functions, equations of value, loan schedules, project appraisal, investments, elementary compound interest problems, arbitrage-free pricing and the pricing and valuation of forward contracts, the term structure of interest rates, stochastic interest rate models.
100 hours
80% Examination, 20% Coursework
The material is covered by the Actuarial Education Company’s notes for Subject CT1 – Financial Mathematics.
See the library reading list for this module (Canterbury)
The intended subject specific learning outcomes.
On successfully completing the module students will be able to:
1 describe how to use a generalized cashflow model to describe financial transactions, making allowances for the probability of payment;
2 describe how to take into account the time value of money using the concepts of compound interest and discounting;
3 show how interest rates or discount rates may be expressed in terms of different time periods;
4 demonstrate a knowledge and understanding of real and money interest rates;
5 calculate the present value and the accumulated value of a stream of equal or unequal payments using specified rates of interest and the net present value at a real rate of interest, assuming a constant rate of inflation;
6 define and use the more important compound interest functions including annuities certain;
7 define an equation of value;
8 describe how a loan may be repaid by regular instalments of interest and capital;
9 show how discounted cashflow techniques can be used in investment project appraisal;
10 describe the investment and risk characteristics of typical assets available for investment purposes;
11 analyse elementary compound interest problems;
12 calculate the delivery price and the value of a forward contract using arbitrage free pricing methods;
13 show an understanding of the term structure of interest rates;
14 show an understanding of simple stochastic interest rate models;
15 appreciate recent developments in Financial Mathematics and the links between the theory of Financial Mathematics and their practical application.
The intended generic learning outcomes.
On successfully completing the module students will be able to:
1 demonstrate a logical mathematical approach to solving problems;
2 demonstrate enhanced skills in written communication;
3 demonstrate skills in time management and organisation;
4 demonstrate enhanced study skills.
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