Mathematics of Investment and Actuarial Science

The first four-fifths of the course deal with simple and compound interest, with applications to simple and general annuities, perpetuities, loan and mortgage payments, sinking funds, bonds, capital budgeting, depreciation, and internal rates of return. In the last few weeks of the course, the theory of interest is applied to life annuities and life insurance.

Students will use EXCEL, a spreadsheet available in the micro-computer laboratory in the Steacie building. This spreadsheet operates on both the Macintosh and IBM-compatible platforms. EXCEL will be used to simplify and illuminate equation-solving, amortization of loans and mortgages, bond schedules, depreciation tables, and mortality tables. No previous computer experience is assumed. With the help of notes and class instruction students will be introduced to the spreadsheet and to its use in mathematics of finance. Students will receive individual computer accounts on the ACADLABS server.

Each student will also need a hand-held calculator which has power and logarithm functions. Specifically, it must be able, given values of x and y, to compute x^y.

The course should be especially interesting to students of business and economics. The emphasis will be on practical problems. Although the mathematical background required is minimal, it is preferred that students will have taken one other mathematics course at university before taking this one.

The required text for the course will be P. Zima and R. Brown, Mathematics of Finance 4th edition (McGraw-Hill Ryerson Ltd. 1993).

The manuals for EXCEL will be on reserve at the desk in Steacie library.

Students who wish a more advanced treatment of the material should not take this course but enrol instead in MATH2280.03. In particular, this includes: 1. Honours Mathematics for Commerce Students. MATH2280.03 is a required course for this programme. 2. Students who are contemplating a career in the actuarial profession. They should take MATH2280.03, followed by MATH3280.06.

In past years the final grade has been based on class testing (60%) and a final examination (40%). In 1997-98 there will likely be some spreadsheet-based homework assignments.

Prerequisites: One full university mathematics course.

Exclusions: AS/SC/MATH2280.03.

Coordinator: Donald H. Pelletier