## MATH/STAT 2600 - Fall 2014

#### ## Theory of Interest This is the page where I post material related to the MATH/STAT 2600 course I am teaching in FALL 2014.

• Office hours: Monday 14:30-15:30, Wednesday 14:30-15:30, Thursday 14:30-15:30
• Office: 202 Chase building
• If you want to come to my office at a different time please email me:tkenney@mathstat.dal.ca
• The website for last year's course is at www.mathstat.dal.ca/~tkenney/2600/2013/index.html. You may find some of the material there useful.
• Midterm Exam: Thursday 16th October, in class. Here are last year's practice midterm and midterm. The model solutions for the Practice Midterm and the midterm. Note that certain formulae are provided on the midterm. No Notes are permitted in the examination!
• Textbook: Mathematics of Investment and Credit by S. Broverman (fifth edition), published by Actex, 2010
• Final Exam: Thursday 11th December 15:30-18:30, Dalplex. Here are some practice questions and model solutions. Note that certain formulae are provided on the midterm. No Notes are permitted in the examination!
• #### Handouts

Course Handout

#### 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.

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

Week beginning Tuesday Thursday
1st September Introduction
8th 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
• 15th 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
• 22nd September
• 2.2 Level Payment Annuities --- some Generalisations
• 2.3 Non-constant Annuities.
• 2.4 Applications and Illustrations
• 29th 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
• 6th October
• 3.4 Applications and Illustrations
• Revision Chapters 1-3
13th October Revision Chapters 1-3

MIDTERM

EXAMINATION

20th October 4 Bonds
• 4.1 Determination of Bond Prices
• 4.2 Amortisation of a Bond
• 4.3 Applications and Illustrations
• 27th October 5 Measuring the Rate of Return of an Investment
• 5.1 Internal Rate of Return
• 5.2 Dollar-Weighted and Time-Weighted Rate of Return
• 5.3 Applications and Illustrations
• 3rd November 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
• 6.3 Forward Rates of Interest
• 6.4 Applications and Illustrations
• 10th November STUDY DAY 7 Cashflow Duration and Immunisation
• 7.1 Duration of a set of cashflows and bond duration
• 17th November
• 7.2 Asset-Liability Matching and Immunisation
• 7.3 Applications and Illustrations
• 24th November Revision Revision
1st December Revision END OF LECTURES

#### Homework

 Assignment 1 Due Thursday 25th September. Model Solutions Assignment 2 Due Thursday 2nd October. Model Solutions Assignment 3 Due Thursday 9th October. Model Solutions Assignment 4 Due Thursday 6th November. Model Solutions Assignment 5 Due Thursday 13th November. Model Solutions Assignment 6 Due Thursday 20th November. Model Solutions Assignment 7 Due Thursday 27th November. Model Solutions