Compound interest functions; valuation of annuities certain; loans repayable by instalments; comparison of value and yield of cash flow transactions; valuation of fixed interest securities, with and without tax on interest and capital gains; duration and volatility of securities; introduction to concept of immunisation and matching; consumer credit contracts; introduction to stochastic interest rate models. 

Learning Outcomes

Upon successful completion, students will have the knowledge and skills to:

1. Define and describe in detail the use of cash flow models, simple and compound rates of interest and discount as well as compare and distinguish between nominal and effective rates of interest and discount.
2. Describe in detail the various types of annuities and perpetuities and use them to solve financial transaction problems.
3. Derive equations of value and various tools like linear interpolation & annuity tables.
4. Communicate the difference in capital budgeting decision tools like Net Present Values, Internal Rates of Return and Discounted Payback Periods.
5. Analyse in depth basic fixed interest financial transactions like Loan Valuation, Fixed Interest securities (eg. Bonds) and employ the skills developed in this course to evaluate such transactions. Incorporate the effects of taxation on such financial transactions.
6. Explain the details of arbitrage and its use in the valuation of forward contracts. Employ term structure of interest rates to calculate forward and spot rates.
7. Define interest rate risk in terms of duration and convexity of fixed interest products. Define immunisation and assess its use in mitigating interest rate risk.

Research-Led Teaching

This course covers the relevant parts of the Actuaries Institute syllabus, pertaining to subject CT1 (Financial Mathematics). Wherever possible the examples used in this course will reflect real world situations to emphasize the use of the techniques covered.

 

Examination Material or equipment

For both the mid-semester and final exam, you will be provided with a HP Scientific Calculator 300+, and an English dictionary if required.

Further information will be provided to students in lecture time and on Wattle.

Required Resources

All course notes and materials will be provided via Wattle. You will need access to a calculator to complete exercises required for this course. You will be provided with a calculator (HP Scientific Calculator 300+) for both mid semester and final examinations.

You will need access to a computer to get the materials necessary for the course. We will use MS Excel in this course. Some in-class work will be illustrated using MS Excel. Learning guides and short video lectures will be made available on wattle for students to learn the application of the concepts taught in this course. Some assignment questions will require the use of MS Excel or a spreadsheet program.

Although there is no prescribed textbooks for this course, various supplementary material can enhance student learning.

Supplementary Reading (Not Compulsory)

Stephen Garrett (2013) An Introduction to the Mathematics of Finance, Second Edition, Butterworth-Heinemann. This book is available as an online textbook on the ANU Library page: Mathematics of Finance in ANU Library. You can download

individual chapters for your personal use. Please ensure you follow the ANU guidelines on copyright issues.

·        Samuel A. Broverman (1996) Mathematics of Investment and Credit, Fifth Edition, Actex Publications, Inc.: Winsted, Connecticut. ISBN: 978-1566987677

·        J.J. McCutcheon and W.F. Scott (1986) An Introduction to the Mathematics of Finance, published for the Institute of Actuaries and Faculty of Actuaries by Heinemann

·        Formula and Tables for Actuarial Examinations, 2002, ACTED Australia

·        Course Material for CT1: Financial Mathematics, ACTED Australia

 

Staff Feedback

Students will be given feedback in the following forms in this course:

•                Following the mid-semester examination, feedback will be given to the whole class about the general performance on the exam.

•                In addition, students will have an opportunity to look over their script-book following both the mid-semester and final examinations.

•                Students will also have the opportunity to speak with the tutors and the lecturer about their individual performance in the assignments.

Student Feedback

ANU is committed to the demonstration of educational excellence and regularly seeks feedback from students. Students are encouraged to offer feedback directly to their Course Convener or through their College and Course representatives (if applicable). The feedback given in these surveys is anonymous and provides the Colleges, University Education Committee and Academic Board with opportunities to recognise excellent teaching, and opportunities for improvement. The Surveys and Evaluation website provides more information on student surveys at ANU and reports on the feedback provided on ANU courses.

Other Information

Scaling

Your final mark for the course will be based on the raw marks allocated for each of your assessment items. However, your final mark may not be the same number as produced by that formula, as marks may be scaled. Any scaling applied will preserve the rank order of raw marks (i.e. if your raw mark exceeds that of another student, then your scaled mark will exceed the scaled mark of that student) and may be either up or down.

Referencing Requirements

Please see the links on the Wattle site, under the file named “ANU and College Policies, Program Information, Student Support Services and Assessment”. For a more interactive guide on what this is all about, please see http://library.acadiau.ca/tutorials/plagiarism/.

Support for Students

The University offers a number of support services for students. Information on these is available online from http://students.anu.edu.au/studentlife/

Extensions and Penalties

?No submission of assessment tasks without an extension after the due date will be permitted. If an assessment task is not submitted by the due date, a mark of 0 will be awarded.

Actuarial Profession Information

Exemption from Actuarial Professional examination

The Australian National University is accredited by the Actuaries Institute (IAAust) to provide students with exemptions from the Part I professional examinations of the Institute. Exemptions are recommended subject to obtaining sufficiently high grades in designated courses.

The standard required by the Actuaries Institute for an exemption will be upheld and thus no quota applies to the percentage of students receiving each grade in this course.

University subscription to the Institute of Actuaries

The Actuaries Institute allows students to become IAAust University Subscribers free of charge. Full time undergraduates studying at an accredited university who are members of a university student actuarial society are eligible. To sign up, go to: http://www.actuaries.asn.au/Membership/MembershipoftheInstitute/Subscriber.aspx

The University Subscriber offer is not a membership of the IAAust but a subscription to receive information on career opportunities, invitations to selected events, and online publications. You might also consider joining the IAAust – there are advantages in doing so while a full-time student. See: http://www.actuaries.asn.au/Membership/MembershipoftheInstitute.aspx

Class Schedule

Week/Session	Summary of Activities	Assessment
1	Cash-flow models. Simple and compound interest. Accumulated and present values.
2	Nominal and effective rates of interest and discount. Force of interest.
3	Introduction to annuities and their valuation.
4	Perpetuities. Continuous, increasing, decreasing and indexed annuities.
5	Equations of value. Introduction to linear interpolation and annuity tables. Dealing with inflation.	Assignment 1 Due
6	Loan valuation and payments. Capital budgeting including NPV, IRR and DPP.	Mid-semester exam (Week 6 or Week 7)
7	Measuring investment performance. TWRR and MWRR.	Mid-semester exam (Week 6 or Week 7)
8	Valuation of fixed interest securities, with and without tax on interest and capital gains.
9	Calculating yields. Allowing for callable features and inflation. Extending to property and share valuation.
10	Arbitrage and valuation of forward contracts. Yield curve and term structure of interest rates. Calculating forward and spot rates.	Assignment 2 Due
11	Interest rate risk: duration, effective duration and convexity. Conditions for and determination of immunisation.
12	Revision

Tutorial Registration

Tutorial signup for this course will be done via the Wattle website. Detailed information about signup times will be provided on Wattle or during your first lecture. When tutorials are available for enrolment, follow these steps:

1.      Log on to Wattle, and go to the course site

2.      Click on the link “Tutorial enrolment”

3.      On the right of the screen, click on the tab “Become Member of…..” for the tutorial class you wish to enter

4.      Confirm your choice

If you need to change your enrolment, you will be able to do so by clicking on the tab “Leave group….” and then re-enrol in another group. You will not be able to enrol in groups that have reached their maximum number. Please note that enrolment in ISIS must be finalised for you to have access to Wattle

Assessment Summary

Assessment task	Value	Due Date	Return of assessment	Learning Outcomes
Assignment 1	5 %	29/03/2019	05/04/2019	1-2
Mid Semester Exam	20 %	01/04/2019	03/05/2019	1-4
Assignment 2	5 %	17/05/2019	24/05/2019	1-5
Final Exam	70 %	06/06/2019	04/07/2019	1-7

* If the Due Date and Return of Assessment date are blank, see the Assessment Tab for specific Assessment Task details

Policies

ANU has educational policies, procedures and guidelines, which are designed to ensure that staff and students are aware of the University’s academic standards, and implement them. Students are expected to have read the Academic Misconduct Rule before the commencement of their course. Other key policies and guidelines include:

• Student Assessment (Coursework) Policy and Procedure
• Special Assessment Consideration Policy and General Information 
• Student Surveys and Evaluations
• Deferred Examinations
• Student Complaint Resolution Policy and Procedure

Assessment Requirements

The ANU is using Turnitin to enhance student citation and referencing techniques, and to assess assignment submissions as a component of the University's approach to managing Academic Integrity. For additional information regarding Turnitin please visit the ANU Online website. Students may choose not to submit assessment items through Turnitin. In this instance you will be required to submit, alongside the assessment item itself, hard copies of all references included in the assessment item.

Moderation of Assessment

Marks that are allocated during Semester are to be considered provisional until formalised by the College examiners meeting at the end of each Semester. If appropriate, some moderation of marks might be applied prior to final results being released.

Examination(s)

The course includes formal examination through a mid-semester and final examination as described above.

As a further academic integrity control, students may be selected for a 15 minute individual oral examination of their written assessment submissions.

Any student identified, either during the current semester or in retrospect, as having used ghost writing services will be investigated under the University’s Academic Misconduct Rule.

Assessment Task 1

Assignment 1

Assignment 1 questions will be provided to all students at the relevant time on the course Wattle page. The assignment is designed to assess the students’ application of the various topics covered in this course, up to and including the material in week 4. Students are expected to complete this assignment individually.Completing this assignment will require the use of MS Excel. More details will be provided during the lectures and on Wattle.

Value: 5%

Due date: Friday 29th March 3:00pm (Week 5)

Assessment Task 2

Mid Semester Exam

This exam will be 90 minutes long.

You will be provided with a calculator (HP Scientific Calculator 300s+) for this exam. Only calculators provided by the Examinations Office on the day of the exam are permitted in the exam room.

Value: 20% (redeemable)

Due date: Week 6 or 7 of semester (specific date to be advised)

Assessment Task 3

Assignment 2

Assignment 2 questions will be provided to all students at the relevant time on the course Wattle page. The assignment is designed to assess the students’ application of the various topics covered in this course, up to and including the material in week 8. Students are expected to complete this assignment individually. Completing this assignment will require the use of MS Excel. More details will be provided during the lectures and on Wattle.

Value: 5%

Due date: Friday 17th May 3:00pm (Week 10)

Assessment Task 4

Final Exam

The final examination will be 3 hours long and will cover the entire syllabus. Specific details regarding examination conditions and the time and location for this examination will be provided on Wattle and in lectures once confirmed.

You will be provided with a calculator (HP Scientific Calculator 300s+) for this exam. Only calculators provided by the Examinations Office on the day of the exam are permitted in the exam room.

Value: 70% or 90%, depending on performance in mid-semester exam.

Date: Specific date to be advised.

Academic Integrity

Academic integrity is a core part of our culture as a community of scholars. At its heart, academic integrity is about behaving ethically. This means that all members of the community commit to honest and responsible scholarly practice and to upholding these values with respect and fairness. The Australian National University commits to embedding the values of academic integrity in our teaching and learning. We ensure that all members of our community understand how to engage in academic work in ways that are consistent with, and actively support academic integrity. The ANU expects staff and students to uphold high standards of academic integrity and act ethically and honestly, to ensure the quality and value of the qualification that you will graduate with. The University has policies and procedures in place to promote academic integrity and manage academic misconduct. Visit the following Academic honesty & plagiarism website for more information about academic integrity and what the ANU considers academic misconduct. The ANU offers a number of services to assist students with their assignments, examinations, and other learning activities. The Academic Skills and Learning Centre offers a number of workshops and seminars that you may find useful for your studies.

Online Submission

You will be required to electronically sign a declaration as part of the submission of your assignment. Please keep a copy of the assignment for your records. Unless an exemption has been approved by the Associate Dean (Education) as submission must be through Turnitin.

Hardcopy Submission

For some forms of assessment (hand written assignments, art works, laboratory notes, etc.) hard copy submission is appropriate when approved by the Associate Dean (Education). Hard copy submissions must utilise the Assignment Cover Sheet. Please keep a copy of tasks completed for your records.

Late Submission

No submission of assessment tasks without an extension after the due date will be permitted. If an assessment task is not submitted by the due date, a mark of 0 will be awarded.

Referencing Requirements

Accepted academic practice for referencing sources that you use in presentations can be found via the links on the Wattle site, under the file named “ANU and College Policies, Program Information, Student Support Services and Assessment”. Alternatively, you can seek help through the Students Learning Development website.

Returning Assignments

Assignments will be returned as soon as they are marked, in your tutorial classes or lectures, or you will be able to collect them from the School Office on level 4 of the CBE building.

Extensions and Penalties

Extensions and late submission of assessment pieces are covered by the Student Assessment (Coursework) Policy and Procedure. The Course Convener may grant extensions for assessment pieces that are not examinations or take-home examinations. If you need an extension, you must request an extension in writing on or before the due date. If you have documented and appropriate medical evidence that demonstrates you were not able to request an extension on or before the due date, you may be able to request it after the due date.

Resubmission of Assignments

Students will not be permitted to resubmit assignments.

Privacy Notice

The ANU has made a number of third party, online, databases available for students to use. Use of each online database is conditional on student end users first agreeing to the database licensor’s terms of service and/or privacy policy. Students should read these carefully. In some cases student end users will be required to register an account with the database licensor and submit personal information, including their: first name; last name; ANU email address; and other information.
In cases where student end users are asked to submit ‘content’ to a database, such as an assignment or short answers, the database licensor may only use the student’s ‘content’ in accordance with the terms of service – including any (copyright) licence the student grants to the database licensor. Any personal information or content a student submits may be stored by the licensor, potentially offshore, and will be used to process the database service in accordance with the licensors terms of service and/or privacy policy.
If any student chooses not to agree to the database licensor’s terms of service or privacy policy, the student will not be able to access and use the database. In these circumstances students should contact their lecturer to enquire about alternative arrangements that are available.

Distribution of grades policy

Academic Quality Assurance Committee monitors the performance of students, including attrition, further study and employment rates and grade distribution, and College reports on quality assurance processes for assessment activities, including alignment with national and international disciplinary and interdisciplinary standards, as well as qualification type learning outcomes.

Since first semester 1994, ANU uses a grading scale for all courses. This grading scale is used by all academic areas of the University.

Support for students

The University offers students support through several different services. You may contact the services listed below directly or seek advice from your Course Convener, Student Administrators, or your College and Course representatives (if applicable).

• ANU Health, safety & wellbeing for medical services, counselling, mental health and spiritual support
• ANU Diversity and inclusion for students with a disability or ongoing or chronic illness
• ANU Dean of Students for confidential, impartial advice and help to resolve problems between students and the academic or administrative areas of the University
• ANU Academic Skills and Learning Centre supports you make your own decisions about how you learn and manage your workload.
• ANU Counselling Centre promotes, supports and enhances mental health and wellbeing within the University student community.
• ANUSA supports and represents undergraduate and ANU College students
• PARSA supports and represents postgraduate and research students