## MATH/STAT 2600 - Fall 2013

#### ## Theory of Interest This is the page where I post material related to the MATH/STAT 2600 course I am teaching in FALL 2013.

• Office hours: Monday 14:30-15:30, Wednesday 14:30-15:30, Thursday 14:30-15:30
• Office: 251 Chase building (on the 2.5th floor - you need to take the stairs at the South end of the building.)
• If you want to come to my office at a different time please email me:tkenney@mathstat.dal.ca
• I previously taught this course in 2010 (using a different textbook). The material from that year is at www.mathstat.dal.ca/~tkenney/2600/2010/index.html. You may find some of the material there useful.
• Midterm Exam: Thursday 17th October, in class. Here are some practice questions for the midterm exam. Here are the solutions.
• Here is the midterm exam. Here are the solutions.
• Textbook: Mathematics of Investment and Credit by S. Broverman (fifth edition), published by Actex, 2010
• Final Exam: Thursday 12th December, 12:00 pm, Dalplex. Here are some practice questions for the final exam. Here are the solutions.
• #### Handouts

Course Handout

Here are some questions on these topics that we may go over in class (taken mostly from previous years' homework sheets).

Here are some numerical answers to the class questions. They're not very well written out as they were originally intended for my personal use while lecturing, but they could be used to check your answers to the questions (though there are some mistakes).

Here are some spreadsheets to show the answers to some of the Class questions. They were originally produced in Open Office and converted to Excel, so there is some (small) possibility of errors with the conversion.

Open Office FormatExcel format
Question 31Q31.odsQ31.xls
Question 37Q37.odsQ37.xls
Question 39Q39.odsQ39.xls
Question 41Q41.odsQ41.xls
Question 44Q44.odsQ44.xls
Question 46Q46.odsQ46.xls
Question 50Q50.odsQ50.xls
Question 51Q51.odsQ51.xls
Question 54Q54.odsQ54.xls
Question 55Q55.odsQ55.xls
Question 56Q56.odsQ56.xls
Question 58Q58.odsQ58.xls
Question 59Q59.odsQ59.xls
Question 60Q60.odsQ60.xls
Question 67Q67.odsQ67.xls

#### Planned material

Lecture time is limited, so I plan to use it explaining concepts and giving examples, rather than reading the textbook. Therefore, to get the most out of each lecture, you should read the relevant material before the lecture. Here is the list of what I expect to cover in each lecture. This is subject to change - make sure to check regularly for changes.

Week beginning Tuesday Thursday
2nd September Introduction
9th September
• 1.1 Interest Accumulation and Effective Rates of Interest
• 1.2 Present Value
• 1.3 Equation of Value
• 1.4 Nominal rates of Interest
• 16th September
• 1.5 Effective and Nominal Rates of Discount
• 1.6 The Force of Interest
• 1.7 Inflation and the "Real" Rate of Interest
• 2 Valuation of Annuities
• 2.1 Level Payment Annuities
• 23rd September
• 2.2 Level Payment Annuities --- some Generalisations
• 2.3 Non-constant Annuities.
• 2.4 Applications and Illustrations
• 30th September 3 Amortisation
• 3.1.1 General form of Amortisation
• 3.1.2 The Amortisation Schedule
• 3.1.3 Retrospective form of Outstanding Balance
• 3.1.4 Prospective form of Outstanding Balance
• 3.2 Amortisation of Loans with Fixed Payments
• 3.1.5 Additional Properties of Amortisation
• 3.3 The sinking fund method of Loan Repayment
• 7th October
• 3.4 Applications and Illustrations
• Revision Chapters 1-3
14th October Revision Chapters 1-3

MIDTERM

EXAMINATION

21st October 4 Bonds
• 4.1 Determination of Bond Prices
• 4.2 Amortisation of a Bond
• 4.3 Applications and Illustrations
• 5 Measuring the Rate of Return of an Investment
• 5.1 Internal Rate of Return
• 28th October
• 5.2 Dollar-Weighted and Time-Weighted Rate of Return
• 5.3 Applications and Illustrations
• 6 The Term Structure of Interest Rates
• 6.1 Spot Rates of Interest
• 6.2 The Relationship Between Spot Rates of Interest and Yield to Maturity of Coupon Bonds
• 4th November
• 6.3 Forward Rates of Interest
• 6.4 Applications and Illustrations
• 6.4 Applications and Illustrations (cont.)
• 11th November STUDY DAY 7 Cashflow Duration and Immunisation
• 7.1 Duration of a set of cashflows and bond duration
• 18th November
• 7.2 Asset-Liability Matching and Immunisation
• 7.3 Applications and Illustrations
• 25th November Revision Revision
2nd December Revision END OF LECTURES

#### Homework

 Assignment 1 Due Thursday 26th September. Model Solutions Assignment 2 Due Thursday 3rd October. Model Solutions Assignment 3 Due Thursday 10th October. Model Solutions Assignment 4 Due Thursday 7th November. Model Solutions Assignment 5 Due Thursday 14th November. Model Solutions Assignment 6 Due Thursday 21st November. Model Solutions Assignment 7 Due Thursday 28th November. Model Solutions