Math 329F

Theory of Interest
Fall 2020
Hector E. Lomeli
) lomeli@math.utexas.edu

Course description: The goal of this course is to provide an understanding of the fundamental concepts of
financial mathematics, and how those concepts are applied in calculating present and accumulated values
for various streams of cash flows as a basis for future use in: reserving, valuation, pricing, asset/liability
management, investment income, capital budgeting, and valuing contingent cash flows.

Topics: This course covers the content for the Society of Actuaries Financial Mathematics Exam (Exam FM)
and the Casualty Actuarial Society Exam 2. We will cover the following topics.

1. The Growth of Money. 6. Bonds.

2. Equations of Value and Yield Rates. 7. Stocks and Financial Markets.
3. Annuities. 8. Arbitrage, Term Structure of Interest Rates,
4. Annuities with Different Payment and and Derivatives.
Conversion Periods. 9. Interest Rate Sensitivity.
5. Loan Repayment. 10. Determinants of Interest Rates.

Hybrid Instruction: We will have classes at the scheduled time. Classes will be hybrid, some in class and
some conducted remotely. All classed will be recorded in Zoom for later use and posted in Canvas. All
instructions, assignments, and essential information will be available on the course webpage or in Canvas.
Please make it a habit to check your email on a regular basis for any updates or changes to upcoming class
sessions. Course sessions that will be conducted only via Zoom and not in our classroom will be announced
accordingly.
Attendance of lectures is optional, but encouraged. In addition, the instructor plans to use OneNote, so all
class notes will also be available in pdf. Zoom invitations will be sent by email. The class will be available
in different formats:
a) Synchronous: the Zoom meeting during the usual class time.
b) Asynchronous: the class will be recorded and class notes will be provided.
It is a good idea to attend lectures. Don’t rely on the recorded class, because technology might fail. All
these things will happen provided the equipment works. Technical difficulties might occur, but you will
have enough material to solve the homework.
At the current time, the state of Texas is still in Covid-19 state of emergency. So, at the beginning of the
semester, we will meet in the classroom once a week, with two remote sessions. Changes to the schedule
may be made at my discretion. If circumstances allow it, we will meet in class more often. It is your
responsibility to note these changes when announced, although I will do my best to ensure that you receive
the changes with as much advanced notice as possible.
Webpage: In addition to Canvas, we will use the following webpage:
http://www.ma.utexas.edu/users/lomeli/m329f
Please check this site regularly and use it to find assignments, some homework solutions and extra material.
Grades will appear in Canvas, as well as all the available Zoom recordings of the classes and office hours.
In addition, Class notes of most lessons will also be available in the webpage.
Prerequisites: Mathematics 408D, 308L, 408L, or 408S with a grade of at least C-.
Textbook: Mathematical Interest Theory, Third Edition by Vaaler, Harper, & Daniel. AMS/MAA Press.
Academic Integrity: Each student is expected to abide by the University of Texas Honor Code:
“As a student of The University of Texas at Austin, I shall abide by the core values of the University and
uphold academic integrity.”
Plagiarism is taken very seriously at UT. Therefore, if you use words or ideas that are not your own (or
that you have used in a previous class), you must cite your sources. Otherwise you will be guilty of
plagiarism and subject to academic disciplinary action, including failure of the course. You are responsible
for understanding UT’s Academic Honesty and the University Honor Code which can be found at the
following web address:
http://deanofstudents.utexas.edu/conduct/standardsofconduct.php
Sharing of Course Materials is Prohibited: No materials used in this class, including, but not limited to, lec-
ture hand-outs, videos, assessments (quizzes, exams, papers, projects, homework assignments), in-class
materials, review sheets, and additional problem sets, may be shared online or with anyone outside of the
class unless you have my explicit, written permission. Unauthorized sharing of materials promotes cheat-
ing. It is a violation of the Universitys Student Honor Code and an act of academic dishonesty. I am well
aware of the sites used for sharing materials, and any materials found online that are associated with you,
or any suspected unauthorized sharing of materials, will be reported to Student Conduct and Academic
Integrity in the Office of the Dean of Students. These reports can result in sanctions, including failure in
the course.
Class Recordings: Class recordings are reserved only for students in this class for educational purposes and are
protected under FERPA. The recordings should not be shared outside the class in any form. Violation of
this restriction by a student, could lead to Student Misconduct proceedings.
Homework: To do well in this course, attend the lectures and do (and understand) the homework. Homework
assignments will be due once a week and will be found on the course webpage.
You need to start homework early, no late work will not be accepted. Homework will be uploaded and
submitted to Gradescope and it should be neat, organized, and legible.
For help and feedback, you are encouraged to ask questions, take advantage of office hours, and work in
study groups.
Calculators: You will need to use the Texas Instruments BAII Plus calculator or the Texas Instruments BAII
Plus Professional calculator. These calculators have the advantage of being approved by the SOA and that
the textbook gives detailed instructions on how to use them. As an optional addition to the BAII Plus or
BAII Plus Professional, you may also use the TI 30-XS Multiview, or TI-30Xa, or TI-30X II. These are
approved by the SOA as well.
Exams: There will three midterm exams and a comprehensive final.
• The midterm exams will be given on the following dates: Friday, September 25, Friday, October
23, and Friday, November 20. Questions will be published in the course webpage the day before the
exam. Students will have several hours to solve the problems and upload them in Gradescope. Details
and instructions will be given later.
• There will be no make-up exams. If you are injured or sick during the scheduled midterm exam,
please bring a note from your doctor or a letter from your primary care provider, verifying your
illness. The lecturer is understanding of absences due to illness or injury, but the degree to which
he can be flexible is entirely at his discretion. We will consider any severe illness and COVID-19
impact as a valid excuse to have a make-up.
• There will be a cumulative final exam; the final exam will be made available on the course webpage
and must be submitted, via upload to Gradescope or email as a single pdf file by 11:59PM CT on
Saturday, December 12. The final will be available on Friday, December 11or before.
Grade determination: Each student can get a maximum of 500 points for the course and from this number the
grade will be determined.
• Class attendance will not be used in determining the grade.
• Each midterm exam is worth 100 points.
• Homework counts for a total of 100 points. The 3 lowest scores will be dropped at the end of the
semester.
• The final is worth 100 points.
• The sum of these grades will determine your course letter grade as follows:
Cutoff Pts. 470 450 435 420 400 385 370 350 335 320 300 <300
Percentage 94% 90% 87% 84% 80% 77% 74% 70% 67% 64% 60% <60%
Grade A A- B+ B B- C+ C C- D+ D D- F
Drop Policy and deadline: Friday, September 11 (twelfth class day) is the date in which the official enrollment
count is taken. It is also the last day to drop a class for a possible refund.
If you want to drop after the twelfth class day, you will need to execute a Q-drop before the Q-drop
deadline, which typically occurs near the middle of the semester. Under Texas law, you are only allowed
six Q-drops while you are in college at any public Texas institution. For more information, see:
https://ugs.utexas.edu/vick/academic/adddrop/qdrop
In addition, Thursday, October 29 is the last day a student may, with the deans approval, withdraw from a
class except for urgent and substantiated, nonacademic reasons.
Statement on Learning Success: Your success in this class is important. If there are aspects of this course that
prevent you from learning or exclude you, please find help as soon as possible. Together we can develop
strategies to meet both your needs and the requirements of the course. It is encouraged to use all the student
resources available through the university.
“Keep Learning” Resources: This course may be offered in a format to which you are unaccustomed. If you
are looking for ideas and strategies to help you feel more comfortable participating in our class, please
explore the resources available here: https://onestop.utexas.edu/keep-learning/
COVID-19 Update: While we will post information related to the contemporary situation on campus, you are
encouraged to stay up-to-date on the latest news as related to the student experience. Check the following
webpage: https://coronavirus.utexas.edu/students

Services for Students with Disabilities: We respect and welcome students of all backgrounds, identities, and
abilities. If there are circumstances that make the learning environment and activities difficult, if you have
medical information that you need to share, or need specific arrangements, please let the instructor know.
The University of Texas is committed to creating an effective learning environment for all students, but this
can only happen if you discuss your needs with the instructor as early as possible. The confidentiality of
these discussions will be maintained. The University of Texas at Austin provides upon request appropriate
academic accommodations for qualified students with disabilities. If that is the case, contact Services for
Students with Disabilities: (512) 471-6259 (voice) or (866) 329-3986 (videophone). For more information:
https://diversity.utexas.edu/disability/
http://ddce.utexas.edu/disability/about/

Safety and Class Participation/Masks: We will all need to make some adjustments in order to benefit from
in-person classroom interactions in a safe and healthy manner. Our best protections against spreading
COVID-19 on campus are masks (defined as cloth face coverings) and staying home if you are showing
symptoms. Therefore, for the benefit of everyone, this is means that all students are required to follow
these important rules.
Every student must wear a cloth face-covering properly in class and in all campus buildings at all times.
Students are encouraged to participate in documented daily symptom screening. This means that each class
day in which on-campus activities occur, students must upload certification from the symptom tracking
app and confirm that they completed their symptom screening for that day to Canvas. Students should not
upload the results of that screening, just the certificate that they completed it. If the symptom tracking app
recommends that the student isolate rather than coming to class, then students must not return to class until
cleared by a medical professional.
Information regarding safety protocols with and without symptoms can be found here:
https://healthyhorns.utexas.edu/coronavirus_exposure_action_chart.html
If a student is not wearing a cloth face-covering properly in the classroom (or any UT building), that student
must leave the classroom (and building). If the student refuses to wear a cloth face covering, class will be
dismissed for the remainder of the period, and the student will be subject to disciplinary action as set forth
in the universitys Institutional Rules/General Conduct 11-404(a)(3). Students who have a condition that
precludes the wearing of a cloth face covering must follow the procedures for obtaining an accommodation
working with Services for Students with Disabilities. Check:
https://orientation.utexas.edu/students-with-disabilities

Mental Health: The University of Texas has the following center if you need support:
Counseling and Mental Health Center. Student Services Bldg (USB), 5th Floor
Hours: M–F 8:00–5:00
(512) 471-3515 (appointments). (512) 471-CALL (crisis line).
For more information, see: http://cmhc.utexas.edu/
Title IX Reporting: Title IX is a federal law that protects against sex and gender-based discrimination, sexual
harassment, sexual assault, sexual misconduct, dating/domestic violence and stalking at federally funded
educational institutions. UT Austin is committed to fostering a learning and working environment free
from discrimination in all its forms. When sexual misconduct occurs in our community, the university can:

• Intervene to prevent harmful behavior from continuing or escalating.

• Provide support and remedies to students and employees who have experienced harm or have become
involved in a Title IX investigation.
• Investigate and discipline violations of the universitys relevant policies.

For more information, please check: https://titleix.utexas.edu/policies

Accommodations for Religious Holidays: By the University of Texas policy, you must notify the instructor of
your pending absence at least fourteen days prior to the date of observance of a religious holy day. (For
religious holidays that fall within the first two weeks of the semester, the notice should be given on the first
day of the semester.) If you must miss a class, an examination, a work assignment, or a project in order
to observe a religious holy day, you will be given an opportunity to complete the missed work within a
reasonable time after the absence.

Fall 2020 Disclaimer: All items on this syllabus are subject to change. Changes will be announced in class and
on Canvas.

Tentative Schedule: We will use more or the following schedule. This is subject to change!

Week Beginning End Material Special dates

1 8/26 8/28 Sections (1.2), 1.3, 1.6.
2 8/31 9/4 Sections 1.4, 1.5, 1.6, 1.7, 1.8, 1.9.
3 9/7 9/11 Sections 1.10, 1.11, 1.12, 1.14.
4 9/14 9/18 Sections 2.2, 2.3, 2.4, 2.5, 2.7.
5 9/21 9/25 Sections 3.1, 3.2, 3.3. Exam 1 on 09/25
6 9/28 10/2 Sections 3.2, 3.4, 3.5, 3.6, 7.1.
7 10/5 10/9 Sections 3.6, 3.7, 3.8, 4.6, 5.2.
8 10/12 10/16 Section 3.9.
9 10/19 10/23 Sections 5.2, 5.4, 6.1. Exam 2 on 10/23
10 10/26 10/30 Sections 6.1, 6.2, 6.3, 6.5.
11 11/2 11/6 Sections 6.9, 8.3. Interest rate swaps.
12 11/9 11/13 Interest rate swaps. Section 9.1.
13 11/16 11/20 Section 9.2. Exam 3 on 11/20
14 11/23 11/25 Sections 9.2, 9.3. Thanksgiving on 11/26
15 11/30 12/4 Sections 9.2, 9.4.