STAT2032/6046

Financial Mathematics
Course Description
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.
Semester and Year
Course URL
Mode of Delivery
Prerequisites
Course Convener
Office Location:
Phone:
Email:
Consultation hours:
Bio and research interests

Tutor(s) (optional)
Student Administrators

Semester 2, 2014
On campus
STAT1008 Quantitative Research Methods OR
STAT1003 Statistical Techniques
Mr Abhinav B Mehta
Room 3.54, ANUCBE Bldg. 26C
02 6125 1081
Abhinav.Mehta@anu.edu.au
TBA
Abhinav is an Associate Lecturer in RSFAS and an Associate
of the Institute of Actuaries of Australia. His research interests
are in the field of Medical and Biostatistics.
He is also pursuing his PhD in Statistics from RSFAS.
TBA
Maria Lander
Level 4, ANUCBE Bldg. 26C
Maria.Lander@anu.edu.au

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COURSE OVERVIEW
Course Learning Outcomes
On satisfying the requirements of this course the student will have the knowledge and skills
to:
1. Define and describe 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 various types of annuities and perpetuities and use them to solve financial
transaction problems.
3. Describe equations of value and various tools like linear interpolation & annuity
tables.
4. Compare capital budgeting decision tools like Net Present Values, Internal Rates of
Return and Discounted Payback Periods.
5. Analyse 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 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
8. Illustrate the basics of stochastic interest rate models and use it to evaluate simple
cash flow models.
Research-Led Teaching
Wherever possible the examples used in this course will reflect real world situations to
emphasize the use of the techniques covered.
Continuous Improvement
We use feedback from students, professional bodies and staff to make regular
improvements to the course. In response to this feedback, design improvements from the
previous version of the course include:

Introduction of Quizzes to provide continuous assessment

Use of technology (in particular Excel) to illustrate the concepts and its application

Technology, Software, Equipment

All course notes and materials will be provided via Wattle. You will need access to a
computer to get the materials necessary for the course. There is a limited use of MS Excel in
this course. Some in class work will be illustrated using MS Excel. Students will have an
option to complete their assignment using MS Excel
Student Feedback
All CBE courses are evaluated using Student Experience of Learning and Teaching (SELT)
surveys, administered by Planning and Statistical Services at the ANU. These surveys are
offered online, and students will be notified via email to their ANU address when surveys are
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available in each course. Feedback is used for course development so please take the time
to respond thoughtfully. Course feedback is anonymous and provides the Colleges,
University Education Committee and Academic Board with opportunities to recognise
excellent teaching and to improve courses across the university. For more information on
student surveys at ANU and reports on feedback provided on ANU courses, visit
http://unistats.anu.edu.au/surveys/selt/students/ and
http://unistats.anu.edu.au/surveys/selt/results/learning/
COURSE SCHEDULE

Week

Summary of Activities

Access to Wattle site for all enrolled students

Cash-flow models. Simple and compound interest.
Accumulated and present values.
Nominal and effective rates of interest and discount.
Force of interest.
Introduction to annuities and their valuation.

1
2
3

Assessment

12

Perpetuities. Continuous, increasing, decreasing and Quiz A to be completed

indexed annuities.
online
Equations of value. Introduction to linear interpolation
and annuity tables. Dealing with inflation.
Loan valuation and payments. Capital budgeting
including NPV, IRR and DPP.
Measuring investment performance. TWRR and
Quiz B to be completed
MWRR.
online
Valuation of fixed interest securities, with and without
tax on interest and capital gains.
Calculating yields. Allowing for callable features and
inflation. Extending to property and share valuation.
Arbitrage and valuation of forward contracts. Yield
curve and term structure of interest rates. Calculating
forward and spot rates.
Interest rate risk: duration, effective duration and
convexity. Conditions for and determination of
immunisation.
Introduction to stochastic interest rate models.
Assignment Due 24 October

13

Revision

4
5
6
7
8
9
10

11

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COURSE ASSESSMENT
Assessment Summary
Item

Title

Value

Due Date

1
2
3
4

Quiz A
Quiz B
Assignment
Final Exam

5%
5%
20%
70%

Week 4
Week 7
24 October
Exam Period

Linked Learning Outcomes

(optional)
LO1
LO2
LO3 LO7
All

Assessment Task 1 & 2:

Quizzes A & B
Details of task:
The quizzes are to be attempted online on Wattle. The quizzes are worth 5% each of your
overall score in the course. You will get at least 45 minutes to complete each quiz. Both the
quizzes are compulsory. Under no circumstances will you be able to attempt the quiz outside
of the allocated time period. Announcement will be made during lectures and on the Wattle
course site regarding the availability of the quiz.
There will be a mix of multiple choice questions and numerical evaluation questions. Quiz A
will cover LO1 of the course. Quiz B will cover LO2 from the outcomes mentioned above.
Extensions and Penalties
No extensions will be granted. This is a compulsory assessment and each quiz is worth 5%
of your overall mark for the course.
Returning Assignments
Feedback via Wattle
Assessment Task 3:
Assignment
Details of task:
The assignment 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. The students are expected to complete this assignment
individually. Students will have the option to complete their assignment in one of these three
forms:
Hand written submission
Answers can be typed and then submission to be completed via Wattle
Use Excel to complete the assignment and submission via Wattle/
More details will be provided during the lectures and on Wattle.
The assignment is compulsory and is worth 20% of your overall mark for this course.
Assignment Submission
All students must hand in an assignment of their own writing. The assignment is to be
submitted online on Wattle at the pre-specified location or hand-written assignments need to

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be dropped off in the assignment box at the RSFAS office on level 4 of ANUCBE Building.
You must attach a coversheet with your assignment.
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 ANU Online.
Extensions and Penalties
In general, no extensions will be granted. Although if there is a genuine medical reason then
an extension or redemption may be granted you provide the relevant documentation.
Examinations
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.
Examinations are closed-book and you are not permitted any course material in the exam
hall. A formula sheet will be provided. You are also allowed to bring in a non-programmable
calculator and a dictionary (these must not contain any material added by the student, and
will be subject to random checks during the course of the examination).
Scaling
Your final mark for the course will be based on the raw marks allocated for each assignment
or examination. 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 or equal the scaled mark of that student), and may be either up or down.
READING LISTS
All course material will be provided via the course Wattle page. There are no prescribed
textbooks for this course. Although there are some supplementary material that can enhance
student learning.
Supplementary Reading (Not Compulsory)

Samuel A. Broverman (1996) Mathematics of Investment and Credit, Second Edition,

Actex Publications, Inc.: Winsted, Connecticut.

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

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TUTORIAL AND/OR SEMINAR REGISTRATION

Students will be expected to attend a one hour tutorial per week from the second week of
semester. The tutorials in this unit serve two functions. Firstly, they provide students with the
opportunity to seek assistance concerning lecture material. Secondly, practice problems will
be assigned each week and the solutions will be discussed in the tutorials. Generally the
questions will relate to the lecture material of the previous week. Students are expected to
have attempted the questions prior to the tutorial. Solutions to the tutorial questions will also
be placed on the course website.
If there is a particular question that you wish to discuss in the tutorial (that is not one of the
questions assigned for the tutorial), then please inform your tutor in advance in order to
allow them time to adequately prepare solutions.
Enrolment in tutorials will be completed online using the CBE Electronic Teaching Assistant
(ETA). To enrol, follow these instructions:
1. Go to http://eta.fec.anu.edu.au
2. You will see the Student Login page. To log into the system, enter your University ID
(your student number) and password (your ISIS password) in the appropriate fields
and hit the Login button.
3. Read any news items or announcements.
4. Select "Sign Up!" from the left-hand navigation bar.
5. Select your courses from the list. To select multiple courses, hold down the control
key. On PCs, this is the Ctrl key; on Macs, it is the
key. Hold this key down while
selecting courses with the mouse. Once courses are selected, hit the SUBMIT
button.
6. A confirmation of class enrolments will be displayed. In addition, an email
confirmation of class enrolments will be sent to your student account.
7. For security purposes, please ensure that you click the LOGOUT link on the
confirmation page, or close the browser window when you have finished your
selections.
IF YOU EXPERIENCE ANY DIFFICULTIES, PLEASE CONTACT THE SCHOOL OFFICE
(SEE PAGE 1 FOR CONTACT DETAILS).
COMMUNICATION
All communications with students will be done via Wattle or one on one consultation (times
will be advised in Week 1) and student email.
Email
If necessary, the lecturers and tutors for this course will contact students on their official
ANU student email address. Information about your enrolment and fees from the Registrar
and Student Services' office will also be sent to this email address.

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Announcements
Students are expected to check the Wattle site for announcements about this course, e.g.
changes to timetables or notifications of cancellations. Notifications of emergency
cancellations of lectures or tutorials will be posted on the door of the relevant room.
Course URLs
More information about this course may be found on:

Programs and Courses (http://programsandcourses.anu.edu.au/2014/Catalogue )

the College of Business and Economics website (http://cbe.anu.edu/courses) and

Wattle (https://Wattle.anu.edu.au), the University's online learning environment. Log

on to Wattle using your student number and your ISIS password.

POLICIES
The University offers a number of support services for students. Information on these is
available online from http://students.anu.edu.au/studentlife/
ANU has educational policies, procedures and guidelines, which are designed to ensure that
staff and students are aware of the Universitys academic standards, and implement them.
You can find the Universitys education policies and an explanatory glossary at:
http://policies.anu.edu.au/
Students are expected to have read the Student Academic Integrity Policy before the
commencement of their course.
Other key policies include:

Student Assessment (Coursework)

Student Surveys and Evaluations

ACTUARIAL PROFESSION INFORMATION

Exemption from Actuarial Professional examination
The Australian National University is accredited by the Actuaries Institute 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. This
course closely follows the syllabus of Subject CT1 of the IAAust.
To qualify for an exemption from the IAAust professional examination CT1, students are
required to receive a mark of 60% or greater in this course.
The standard required by the Institute of Actuaries of Australia for an exemption will be
upheld and thus no quota applies to the percentage of students receiving each grade in this
course.

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University subscription to the Institute of Actuaries

The Institute of Actuaries of Australia (IAAust) allows students to become IAAust University
Subscribers free of charge. Full time undergraduates studying at an Institute 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 IAAust events and online
publications. You might also consider joining the IAAust there are advantages in doing so
while a full-time student.
For membership information, go to
http://www.actuaries.asn.au/Membership/MembershipoftheInstitute.aspx

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