Students
ACST851 – Mathematics of Finance
2014 – S1 Day
General Information
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| Unit convenor and teaching staff |
Unit convenor and teaching staff
Unit Convenor
Jim Farmer
Contact via jim.farmer@mq.edu.au
E4A 616
Refer to the unit's web site
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| Credit points |
Credit points
4
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| Prerequisites |
Prerequisites
(ACST603 and ACST604) or admission to MActPrac prior to 2011
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| Corequisites |
Corequisites
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| Co-badged status |
Co-badged status
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| Unit description |
Unit description
This unit provides a rigorous mathematical development of compound interest theory, using calculus where appropriate. Topics include the force of interest and its relationship to interest rates, inflation and capital gains tax, discrete and continuous term certain annuities, project appraisal, loans, bonds, yield curves, matching and immunisation, pricing by the 'no arbitrage' assumption, and forward rate agreements. Students are assumed to be able to use the basic functionality of a spreadsheet package of their choice.
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Important Academic Dates
Information about important academic dates including deadlines for withdrawing from units are available at https://www.mq.edu.au/study/calendar-of-dates
Learning Outcomes
On successful completion of this unit, you will be able to:
- Be able to demonstrate a deep understanding of compound interest theory.
- Be able to demonstrate a deep understanding of the use of annuities.
- Be able to demonstrate application of the above concepts to a range of practical problems in finance, including loans, analysis of investment projects, valuation of fixed interest securities, including the use of yield curves & use of the “no arbitrage” pricing method, forward contracts and immunisation theory.
- Be able to use spreadsheets to efficiently solve computationally challenging problems.
Assessment Tasks
| Name | Weighting | Due |
|---|---|---|
| Quizzes | 15% | Various over weeks 2 to 5 |
| Assignment | 15% | Monday 26 May 3pm |
| Final Exam | 70% | Standard Exam Period |
Quizzes
Due: Various over weeks 2 to 5
Weighting: 15%
These online quizzes are available on the unit's web site.
Your total quiz mark is simply the sum of your marks from each quiz. Since the quizzes have different numbers of questions, this means the 5 quizzes are not equally weighted in the assessment.
No extensions will be granted. Students who have not submitted the task prior to the deadline will be awarded a mark of 0 for the task, except for cases in which an application for special consideration is made and approved.
For eligibility for special consideration in respect of the final exam, a minimum mark of 65% is required for the quizzes.
On successful completion you will be able to:
- Be able to demonstrate a deep understanding of compound interest theory.
- Be able to demonstrate a deep understanding of the use of annuities.
Assignment
Due: Monday 26 May 3pm
Weighting: 15%
Assignments are to be submitted to the lecturer at any class prior to the deadline.
No extensions will be granted. Students who have not submitted the task prior to the deadline will be awarded a mark of 0 for the task, except for cases in which an application for special consideration is made and approved.
On successful completion you will be able to:
- Be able to demonstrate a deep understanding of compound interest theory.
- Be able to demonstrate a deep understanding of the use of annuities.
- Be able to demonstrate application of the above concepts to a range of practical problems in finance, including loans, analysis of investment projects, valuation of fixed interest securities, including the use of yield curves & use of the “no arbitrage” pricing method, forward contracts and immunisation theory.
- Be able to use spreadsheets to efficiently solve computationally challenging problems.
Final Exam
Due: Standard Exam Period
Weighting: 70%
To be eligible for a passing grade in this unit a pass is required in the final examination.
Students are permitted to use non-programmable calculators with no text-retrieval capacity.
The Macquarie University examination policy details the principles and conduct of examinations at the University. The policy is available at: http://www.mq.edu.au/policy/docs/examination/policy.htm
While tutorial attendance does not carry any weight in the assessment scheme, for eligibility for special consideration in respect of the final exam, students must be in attendance for at least 7 tutorials.
On successful completion you will be able to:
- Be able to demonstrate a deep understanding of compound interest theory.
- Be able to demonstrate a deep understanding of the use of annuities.
- Be able to demonstrate application of the above concepts to a range of practical problems in finance, including loans, analysis of investment projects, valuation of fixed interest securities, including the use of yield curves & use of the “no arbitrage” pricing method, forward contracts and immunisation theory.
Delivery and Resources
Classes
There are 5 hours of face-to-face teaching per week consisting of 3 hours of lectures and 2 hours of tutorial.
Class times can be found at: http://www.timetables.mq.edu.au/
Required and Recommended Texts and/or Materials
No textbooks are prescribed for this unit. Detailed notes, exercises and solutions are available on the unit's web site. The web site also contains a list of all textbooks we are aware of covering significant amounts of the material in this unit.
Technology Used and Required
You will require a calculator. For the test and the final exam, you may only use non-programmable calculators which are not able to store text. You may find it useful to be able to construct spreadsheets to verify your solutions to tutorial exercises. You will also be required to use a spreadsheet for the assignment. We do not prescribe any particular brand of spreadsheet.
We are required to point out that you need access to a computer to access material on the unit's iLearn web site. This seems like a pointless thing to say given you needed access to a computer to locate this document in the first place.
Unit Web Site
The web site for this unit can be accessed at http://ilearn.mq.edu.au
Teaching and Learning Activities
This unit is taught via lectures and tutorials. However, a significant amount of the lecture time will be spent on attempting problems. The emphasis is on learning by doing.
What has changed?
There have been no significant changes to content since the previous offering.
Unit Schedule
The unit's iLearn web site contains a version of this schedule with better formatting.
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Week |
Week Begins |
Topics Covered in Lectures
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1 |
3 March |
0. Preliminaries. (Reading only) 1. Interest Rates – Discrete time scenarios |
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2 |
10 March |
2. Inflation and Capital Gains Tax 3. Forces of Interest – Continuous time scenarios |
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3 |
17 March |
4. Level Annuities |
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4 |
24 March |
5. Varying Annuities |
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5 |
31 March |
6. Loans 31 March – Last day to drop units without charge |
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6 |
7 April |
7. Project Appraisal |
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2-week study break |
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7 |
28 April |
8. Measuring Investment Performance 9. Investments and Industry Jargon (Reading only) |
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8 |
5 May |
10. Bonds |
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9 |
12 May |
11. Yield Curves |
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10 |
19 May |
12. Forward Contracts |
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11 |
26 May |
13. Bond Statistics |
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12 |
2 June |
14. Immunisation |
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13 |
9 June |
Public holiday Monday. |
Policies and Procedures
Macquarie University policies and procedures are accessible from Policy Central. Students should be aware of the following policies in particular with regard to Learning and Teaching:
Academic Honesty Policy http://mq.edu.au/policy/docs/academic_honesty/policy.html
Assessment Policy http://mq.edu.au/policy/docs/assessment/policy.html
Grading Policy http://mq.edu.au/policy/docs/grading/policy.html
Grade Appeal Policy http://mq.edu.au/policy/docs/gradeappeal/policy.html
Grievance Management Policy http://mq.edu.au/policy/docs/grievance_management/policy.html
Disruption to Studies Policy http://www.mq.edu.au/policy/docs/disruption_studies/policy.html The Disruption to Studies Policy is effective from March 3 2014 and replaces the Special Consideration Policy.
In addition, a number of other policies can be found in the Learning and Teaching Category of Policy Central.
Student Code of Conduct
Macquarie University students have a responsibility to be familiar with the Student Code of Conduct: https://students.mq.edu.au/support/student_conduct/
Special Consideration
Supplementary Exams Further information regarding supplementary exams, including dates, is available hereStudent Support
Macquarie University provides a range of support services for students. For details, visit http://students.mq.edu.au/support/
Learning Skills
Learning Skills (mq.edu.au/learningskills) provides academic writing resources and study strategies to improve your marks and take control of your study.
Student Services and Support
Students with a disability are encouraged to contact the Disability Service who can provide appropriate help with any issues that arise during their studies.
Student Enquiries
For all student enquiries, visit Student Connect at ask.mq.edu.au
IT Help
For help with University computer systems and technology, visit http://informatics.mq.edu.au/help/.
When using the University's IT, you must adhere to the Acceptable Use Policy. The policy applies to all who connect to the MQ network including students.
Graduate Capabilities
PG - Discipline Knowledge and Skills
Our postgraduates will be able to demonstrate a significantly enhanced depth and breadth of knowledge, scholarly understanding, and specific subject content knowledge in their chosen fields.
This graduate capability is supported by:
Learning outcomes
- Be able to demonstrate a deep understanding of compound interest theory.
- Be able to demonstrate a deep understanding of the use of annuities.
- Be able to demonstrate application of the above concepts to a range of practical problems in finance, including loans, analysis of investment projects, valuation of fixed interest securities, including the use of yield curves & use of the “no arbitrage” pricing method, forward contracts and immunisation theory.
- Be able to use spreadsheets to efficiently solve computationally challenging problems.
Assessment tasks
- Quizzes
- Assignment
- Final Exam
PG - Critical, Analytical and Integrative Thinking
Our postgraduates will be capable of utilising and reflecting on prior knowledge and experience, of applying higher level critical thinking skills, and of integrating and synthesising learning and knowledge from a range of sources and environments. A characteristic of this form of thinking is the generation of new, professionally oriented knowledge through personal or group-based critique of practice and theory.
This graduate capability is supported by:
Learning outcomes
- Be able to demonstrate a deep understanding of compound interest theory.
- Be able to demonstrate a deep understanding of the use of annuities.
- Be able to demonstrate application of the above concepts to a range of practical problems in finance, including loans, analysis of investment projects, valuation of fixed interest securities, including the use of yield curves & use of the “no arbitrage” pricing method, forward contracts and immunisation theory.
- Be able to use spreadsheets to efficiently solve computationally challenging problems.
Assessment tasks
- Quizzes
- Assignment
- Final Exam
Research and Practice
Mathematics of finance has a long history. Most of the mathematical theory used in this unit was developed over a century ago. Hence the research we are using can be found in textbooks on mathematics of finance, rather than needing to source recent research papers.
The development of computers in the 1960s, cheap electronic calculators in the 1970s and spreadsheets in the 1980s revolutionised the subject of mathematics of finance. Before computers many maths of finance problems were conceptually simple but the sheer length of the calculations required made exact calculations expensive to implement, and many clever approximate techniques were developed to work around this. Now, many approximate techniques are not required, since computers can easily implement the lengthy calculations required to apply the theory exactly. While a textbook from 50 years ago might contain many concepts that are now irrelevant, it probably also contains most of the theory we still need for this unit.
Computers did also lead to the development of new ideas in mathematics of finance, notably in stochastic modelling. That material mostly falls in ACST816 and ACST817 rather than in this unit.