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2020/21 Undergraduate Module Catalogue

MATH1515 Interest Rates and Cashflow Modelling

15 creditsClass Size: 410

Module manager: Dr Tiziano De Angelis
Email: T.DeAngelis@leeds.ac.uk

Taught: Semester 2 (Jan to Jun) View Timetable

Year running 2020/21

Pre-requisite qualifications

Grade B in A-level Mathematics or equivalent.

This module is approved as a discovery module

Module summary

This module serves as an introduction to financial mathematics, the application of mathematics to financial problems. We will look at simple financial transactions, like mortgages, annuities and government bonds, and study how to assign a value to them. Central concepts are interest rates and the time value of money (the idea that one pound now is preferable to one pound later). This theory can then be used to evaluate investment projects.

Objectives

- Introduction to mathematical modelling of financial and insurance markets with particular emphasis on the time-value of money and interest rates.
- Introduction to simple financial instruments.
- This module covers a major part of the Faculty and Institute of Actuaries CM1 syllabus (Actuarial Mathematics 1).

Learning outcomes
On completion of this module, students should be able to:
- understand the time value of money and to calculate interest rates and discount factors
- apply these concepts to the pricing of simple, fixed-income financial instruments and the assessment of investment projects.


Syllabus

1. Interest rates. Simple interest rates. Present value of a single future payment. Discount factors.
2. Effective and nominal interest rates. Real and money interest rates. Compound interest rates. Relation between the time periods for compound interest rates and the discount factor.
3. Term structure of interest rates.
4. Compound interest functions. Annuities and perpetuities.
5. Loans.
6. Introduction to fixed-income instruments. Generalized cashflow model.
7. Net present value of a sequence of cashflows. Equation of value. Internal rate of return. Investment project appraisal.
8. Examples of cashflow patterns and their present values.
9. Elementary compound interest problems.
10. Effective duration, convexity and portfolio immunisation.

Teaching methods

Due to COVID-19, teaching and assessment activities are being kept under review - see module enrolment pages for information

Delivery typeNumberLength hoursStudent hours
Lecture111.0011.00
Tutorial91.009.00
Private study hours130.00
Total Contact hours20.00
Total hours (100hr per 10 credits)150.00

Private study

Consolidation of course notes and background reading: J. McCutcheon, W.F. Scott "An Introduction to Mathematics of Finance".

Opportunities for Formative Feedback

- Assessment of coursework assignments.
- Contact during tutorials.



!!! In order to pass the module, students must pass the examination. !!!

Methods of assessment

Due to COVID-19, teaching and assessment activities are being kept under review - see module enrolment pages for information


Coursework
Assessment typeNotes% of formal assessment
Assignment.20.00
Written Work5 worksheets over the Semester5.00
Total percentage (Assessment Coursework)25.00

There is no resit available for the coursework component of this module. If the module is failed, the coursework mark will be carried forward and added to the resit exam mark with the same weighting as listed above.

Reading list

The reading list is available from the Library website

Last updated: 10/08/2020 08:42:06

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