General Information
This subject offers a foundation in compound interest theory which underpins a number of common financial calculations. This theoretical knowledge is supplemented with application to a variety of valuation and investment decisions. An introduction to simple stochastic models is also provided.
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Details
Academic unit: Bond Business School Subject code: ACSC71-201 Subject title: Financial Mathematics Subject level: Postgraduate Semester/Year: January 2022 Credit points: 10.000 -
Delivery & attendance
Timetable: https://bond.edu.au/timetable Delivery mode: Standard Workload items: - Lecture: x12 (Total hours: 24) - Lecture 1
- Workshop: x12 (Total hours: 24) - Workshop 2
- Personal Study Hours: x12 (Total hours: 72) - Recommended study time & reviewing materials
Attendance and learning activities: Attendance at all class sessions is expected. Students are expected to notify the instructor of any absences with as much advance notice as possible. -
Resources
Prescribed resources: No Prescribed resources.
After enrolment, students can check the Books and Tools area in iLearn for the full Resource List.iLearn@Bond & Email: iLearn@Bond is the online learning environment at Bond University and is used to provide access to subject materials, lecture recordings and detailed subject information regarding the subject curriculum, assessment and timing. Both iLearn and the Student Email facility are used to provide important subject notifications. Additionally, official correspondence from the University will be forwarded to students’ Bond email account and must be monitored by the student. To access these services, log on to the Student Portal from the Bond University website as www.bond.edu.au
| Academic unit: | Bond Business School |
|---|---|
| Subject code: | ACSC71-201 |
| Subject title: | Financial Mathematics |
| Subject level: | Postgraduate |
| Semester/Year: | January 2022 |
| Credit points: | 10.000 |
| Timetable: | https://bond.edu.au/timetable |
|---|---|
| Delivery mode: | Standard |
| Workload items: |
|
| Attendance and learning activities: | Attendance at all class sessions is expected. Students are expected to notify the instructor of any absences with as much advance notice as possible. |
| Prescribed resources: | No Prescribed resources. After enrolment, students can check the Books and Tools area in iLearn for the full Resource List. |
|---|---|
| iLearn@Bond & Email: | iLearn@Bond is the online learning environment at Bond University and is used to provide access to subject materials, lecture recordings and detailed subject information regarding the subject curriculum, assessment and timing. Both iLearn and the Student Email facility are used to provide important subject notifications. Additionally, official correspondence from the University will be forwarded to students’ Bond email account and must be monitored by the student. To access these services, log on to the Student Portal from the Bond University website as www.bond.edu.au |
Enrolment requirements
| Requisites: |
Nil |
|---|---|
| Assumed knowledge: |
Assumed knowledge is the minimum level of knowledge of a subject area that students are assumed to have acquired through previous study. It is the responsibility of students to ensure they meet the assumed knowledge expectations of the subject. Students who do not possess this prior knowledge are strongly recommended against enrolling and do so at their own risk. No concessions will be made for students’ lack of prior knowledge. Possess demonstratable knowledge in elementary probability theory, statistics, elementary calculus and linear algebra to the level of a unit such as STAT11-112 Quantitative Methods. |
| Restrictions: |
Nil |
Assurance of learning
Assurance of Learning means that universities take responsibility for creating, monitoring and updating curriculum, teaching and assessment so that students graduate with the knowledge, skills and attributes they need for employability and/or further study.
At Bond University, we carefully develop subject and program outcomes to ensure that student learning in each subject contributes to the whole student experience. Students are encouraged to carefully read and consider subject and program outcomes as combined elements.
Program Learning Outcomes (PLOs)
Program Learning Outcomes provide a broad and measurable set of standards that incorporate a range of knowledge and skills that will be achieved on completion of the program. If you are undertaking this subject as part of a degree program, you should refer to the relevant degree program outcomes and graduate attributes as they relate to this subject.
Subject Learning Outcomes (SLOs)
On successful completion of this subject the learner will be able to:
- Use discounted cash flow techniques to calculate home loan repayment schedule, perform project appraisal and determine capital budgeting requirements.
- Explain the investment and risk characteristics of a variety of investment assets.
- Demonstrate an understanding of the term structure of interest rates, the concept of spot rate, forward rate, duration of a series of cash flows, and immunisation.
- Calculate the delivery price and the arbitrage-free value of a forward contract.
- Apply probability rules and concepts relating to discrete and continuous random variables. Demonstrate an understanding of simple stochastic models for investment returns.
Generative Artificial Intelligence in Assessment
The University acknowledges that Generative Artificial Intelligence (Gen-AI) tools are an important facet of contemporary life. Their use in assessment is considered in line with students’ development of the skills and knowledge which demonstrate learning outcomes and underpin study and career success. Instructions on the use of Gen-AI are given for each assessment task; it is your responsibility to adhere to these instructions.
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Assessment details
Type Task % Timing* Outcomes assessed Computer-Aided Examination (Open) Comprehensive Final Examination 60% Final Examination Period 1,2,3,4,5 Computer-Aided Examination (Open) Examination relating to the content of the first half of the subject. 20% Week 7 (Mid-Semester Examination Period) 1,2,3,4,5 Analysis An applied assignment using spreadsheets to calculate basic formulae and related applications. 10% Week 6 1,4,5 *Business Case An applied assignment using spreadsheets to investigate modelling real world cash flows including from simple stochastic sources. 10% Week 11 1,2,3,5 - * Assessment timing is indicative of the week that the assessment is due or begins (where conducted over multiple weeks), and is based on the standard University academic calendar
- C = Students must reach a level of competency to successfully complete this assessment.
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Assessment criteria
Assessment criteria
High Distinction 85-100 Outstanding or exemplary performance in the following areas: interpretative ability; intellectual initiative in response to questions; mastery of the skills required by the subject, general levels of knowledge and analytic ability or clear thinking. Distinction 75-84 Usually awarded to students whose performance goes well beyond the minimum requirements set for tasks required in assessment, and who perform well in most of the above areas. Credit 65-74 Usually awarded to students whose performance is considered to go beyond the minimum requirements for work set for assessment. Assessable work is typically characterised by a strong performance in some of the capacities listed above. Pass 50-64 Usually awarded to students whose performance meets the requirements set for work provided for assessment. Fail 0-49 Usually awarded to students whose performance is not considered to meet the minimum requirements set for particular tasks. The fail grade may be a result of insufficient preparation, of inattention to assignment guidelines or lack of academic ability. A frequent cause of failure is lack of attention to subject or assignment guidelines. Quality assurance
For the purposes of quality assurance, Bond University conducts an evaluation process to measure and document student assessment as evidence of the extent to which program and subject learning outcomes are achieved. Some examples of student work will be retained for potential research and quality auditing purposes only. Any student work used will be treated confidentially and no student grades will be affected.
| Type | Task | % | Timing* | Outcomes assessed |
|---|---|---|---|---|
| Computer-Aided Examination (Open) | Comprehensive Final Examination | 60% | Final Examination Period | 1,2,3,4,5 |
| Computer-Aided Examination (Open) | Examination relating to the content of the first half of the subject. | 20% | Week 7 (Mid-Semester Examination Period) | 1,2,3,4,5 |
| Analysis | An applied assignment using spreadsheets to calculate basic formulae and related applications. | 10% | Week 6 | 1,4,5 |
| *Business Case | An applied assignment using spreadsheets to investigate modelling real world cash flows including from simple stochastic sources. | 10% | Week 11 | 1,2,3,5 |
- * Assessment timing is indicative of the week that the assessment is due or begins (where conducted over multiple weeks), and is based on the standard University academic calendar
- C = Students must reach a level of competency to successfully complete this assessment.
Assessment criteria
| High Distinction | 85-100 | Outstanding or exemplary performance in the following areas: interpretative ability; intellectual initiative in response to questions; mastery of the skills required by the subject, general levels of knowledge and analytic ability or clear thinking. |
|---|---|---|
| Distinction | 75-84 | Usually awarded to students whose performance goes well beyond the minimum requirements set for tasks required in assessment, and who perform well in most of the above areas. |
| Credit | 65-74 | Usually awarded to students whose performance is considered to go beyond the minimum requirements for work set for assessment. Assessable work is typically characterised by a strong performance in some of the capacities listed above. |
| Pass | 50-64 | Usually awarded to students whose performance meets the requirements set for work provided for assessment. |
| Fail | 0-49 | Usually awarded to students whose performance is not considered to meet the minimum requirements set for particular tasks. The fail grade may be a result of insufficient preparation, of inattention to assignment guidelines or lack of academic ability. A frequent cause of failure is lack of attention to subject or assignment guidelines. |
Quality assurance
For the purposes of quality assurance, Bond University conducts an evaluation process to measure and document student assessment as evidence of the extent to which program and subject learning outcomes are achieved. Some examples of student work will be retained for potential research and quality auditing purposes only. Any student work used will be treated confidentially and no student grades will be affected.
Study Information
Submission procedures
Students must check the iLearn@Bond subject site for detailed assessment information and submission procedures.
Policy on late submission and extensions
A late penalty will be applied to all overdue assessment tasks unless an extension is granted by the subject coordinator. The standard penalty will be 10% of marks awarded to that assessment per day late with no assessment to be accepted seven days after the due date. Where a student is granted an extension, the penalty of 10% per day late starts from the new due date.
Academic Integrity
University’s Academic Integrity Policy defines plagiarism as the act of misrepresenting as one’s own original work: another’s ideas, interpretations, words, or creative works; and/or one’s own previous ideas, interpretations, words, or creative work without acknowledging that it was used previously (i.e., self-plagiarism). The University considers the act of plagiarising to be a breach of the Student Conduct Code and, therefore, subject to the Discipline Regulations which provide for a range of penalties including the reduction of marks or grades, fines and suspension from the University.
Bond University utilises Originality Reporting software to inform academic integrity.Feedback on assessment
Feedback on assessment will be provided to students within two weeks of the assessment submission due date, as per the Assessment Policy.
Accessibility and Inclusion Support
If you have a disability, illness, injury or health condition that impacts your capacity to complete studies, exams or assessment tasks, it is important you let us know your special requirements, early in the semester. Students will need to make an application for support and submit it with recent, comprehensive documentation at an appointment with a Disability Officer. Students with a disability are encouraged to contact the Disability Office at the earliest possible time, to meet staff and learn about the services available to meet your specific needs. Please note that late notification or failure to disclose your disability can be to your disadvantage as the University cannot guarantee support under such circumstances.
Additional subject information
Formulae and Tables for Actuarial Examinations - available from the bookshop or http://www.actuaries.org.uk/research-and-resources/eshop. As part of the requirements for Business School quality accreditation, the Bond Business School employs an evaluation process to measure and document student assessment as evidence of the extent to which program and subject learning outcomes are achieved. Some examples of student work will be retained for potential research and quality auditing purposes only. Any student work used will be treated confidentially and no student grades will be affected.
Subject curriculum
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Introduction to Interest Rates and Cash Flow
An introduction to various cash flow scenarios, the time value of money, simple and compound interest, accumulation and the principle of consistency, present values. Introduction to the concept of arbitrage. Considers why the principle of consistency is a consequence of the no arbitrage assumption.
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Nominal and effective rates
The relationship between nominal and effective rates on interest and discount are considered as are the subtle differences between the two. Demonstration of the calculation of present values and accumulated values. Consideration is given to the link between the time value of money with the concept of the principles of fair pricing. Attention is paid to the concept of no-Arbitrage opportunities with fair pricing.
SLOs included
- Use discounted cash flow techniques to calculate home loan repayment schedule, perform project appraisal and determine capital budgeting requirements.
- Demonstrate an understanding of the term structure of interest rates, the concept of spot rate, forward rate, duration of a series of cash flows, and immunisation.
- Calculate the delivery price and the arbitrage-free value of a forward contract.
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Arbitrage and Forward Contracts
Pricing forward contracts. Consideration of how the concept of arbitrage and the “The Law of One Price” can be the basis for calculating the fair price of a forward contract. Discussion of the relationships between these general principles and Arbitrage to the Financial Markets in general.
SLOs included
- Explain the investment and risk characteristics of a variety of investment assets.
- Demonstrate an understanding of the term structure of interest rates, the concept of spot rate, forward rate, duration of a series of cash flows, and immunisation.
- Calculate the delivery price and the arbitrage-free value of a forward contract.
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Annuities
An annuity represents a series of payments. The payments can start immediately or sometime in the future (i.e., deferred). Annuities can be paid monthly, quarterly, half-yearly, depending on the contract. A variety of annuity structures are introduced and compared.
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Equations of Value
Constructing and solving equations of value for price, payment, time or interest rate. The underlying principle of equating the value of costs and benefits to solve for some unknown quantity is explored in depth.
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Loans
The components and structure of various loans types are examined in detail, including loan repayments, loan schedule and calculating outstanding balance.
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Project Appraisal and Capital Budgeting
Presents methods and techniques for evaluating potential projects for investment and related decisions. Concepts of accumulated profit, net present value, internal rate of return are introduced. Deciding on an appropriate evaluate methods for a given investment consideration is explored in depth.
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Fixed Interest Securities
Investment and risk characteristics of different types of fixed interest securities are examined. Calculating bond prices and yields, with and without income tax and capital gains tax is also explained. Understanding why and in what direction a change in yield results in a corresponding change in bond price is emphasised.
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The Yield Curve and The Term Structure of Interest Rates
Considers a number of theoretical perspectives (e.g., expectation theory, market segmentation theory) to explain the nature of the yield curve, par yield and yield to maturity and the relationship between spot rates and forward rates. The concepts of duration, convexity and immunisation are also considered, including Redington’s method of immunisation.