Mathematics of Investment 
Prof. Donald H. Pelletier


20022003 Full year 
N506 Ross


AS/MA 2580 6.0 BY 
4167362100 ext.33339


Section B: Thursdays 7 to 10 pm in VH C 
dhpell@mathstat.yorku.ca

COURSE DIARY This is a list of questions from the text that were done in class on the various dates.
September 12: 1.1 #3, 10, 13, 14, 15 and 1.2 #2
September 19: 1.2 #5; 1.3 # 4, 11, 12; 1.4 #1 and 1.5 #1, 2.
We also explained how the relationship between a simple discount rate,
d,
and its "corresponding" simple interest rate, r, is time dependent.
September 26: 2.1 A2, 8, 13; 2.2 A2b,e, A3d, A4, A6, B8;
2.3 A5, 9, 14; 2.4 A1, 3.
October 3: We began with a thorough discussion of linear interpolation
and did Exercise 2.4 B2. We then redid Exercise 2.4 A1 and Example 2 on
page 37 using interpolation to observe that the answers are the same as
those obtained using the text's "practical" method. Finally, 2.5 A2, 6,
13, 15 and B4, 8.
October 10: 2.5 B6; 2.6 A7, 13 and B3; 2.7 A5 and B1 (including a proof
that it's the right hand side that is greater than or equal to the left
hand side); 2.8 A4 and B3.
October 17: 2.9 A3, 5, 6 and B6; 2.10 A6, 7 (from this section, we
will cover ONLY the material on Treasury Bills; the subject of compound
discount at a discount rate will be omitted), 3.2 A3, 12, B3; 3.3 A3, 11.
October 24: 3.2 A14, B8, 3.3 B1, 3, 10, 13, 16, 3.4 A3, 10, 13,
B7, 9, 10, 3.5 A2.
October 31: 3.5 A9, B2, 8, 9; Appendix 3.1 #3, 4; Analogue of
2.2 B8 allowing 12 monthly rather than 2 semiannual payments.
November 7: 3.6 A3, 6, B1, 2, 8; 4.1 A1, 6, 15, 24.
November 14: 4.1 A18, 23, B4, 8, 13; a general discussion of
mortgage features followed by 4.2 A9, 10.
November 21: Class Test 1
November 28: The solutions to the Class Test were presented followed
by 4.3 A4, 5, 8 and B5.
January 9: Section 5.1 Example 7 (done with full details!), 5.1
A7, 12; B1, 4, 6, 12.
January 16: 5.1 B7, 17; 5.2 A3, 4, B2, 10; 5.3 Example 1 and
Example 3; alternate solutions to both these Examples were also presented.
January 23: Further discussion of 5.3 Example 3; 5.3 B2, 3; 5.6
A6, 8; 5.7 A2, 4
January 30: Class Test 2
February 6: 6.2 A3, 6. Introduction to EXCEL: discussion of relative
vs absolute cell references in formulas; distribution of handout called
FinFcnsCribsheet.doc and detailed presentation of the Excel workbook FinancialFunctions.XLW
(see the link above for access information).
February 13: 6.2 B3, 8; 6.3 A4, 5, B3, 6, 11. Discussion of the
following EXCEL workbooks: Page 27.XLW, BondSchedule.XLW, AmortizedLoan.XLW
February 27: 6.4 A3; 6.4 A3 redone with the 15year call at 103; 6.5
A1, B1, 2; 6.6 A3,7 and B4.
March 6: 6.7 A3, 15; use of the GoalSeek tool in EXCEL to compute
yields on bonds; 7.1 Examples 1, 2, 3, 4; discussion of the builtin EXCEL
functions NPV and IRR and their application to the examples from section
7.1.
March 13: All the EXCEL spreadsheets in our course folder that
deal with Sections 7.1 and 7.2 were discussed. Recommended reading
spreadsheets Page109Exercise15.XLW and Page79Example3.XLW for students
having trouble with the GoalSeek tool. Exercises 7.3 A1, 5, 8, B2.
Introductory remarks concerning Section 4.4 (the geometric case only),
8.2 (problems involving mortality only  specifically, Example 5 and
Exercises A9, 10, and 11), 8.4 (pricing bonds that have a probability of
default) and all of Chapter 9.
March 20: Class Test 3
March 27: Section 4.4 (only the geometric progressions, with
special attention to Exercise 4.4B1), 4.4 Example 1; Section 8.2 Exercises
A9, 10, 11; 8.4 A1 and 7; 9.2 A1(a) and (b), A2; 9.3 A1; 9.4 A7
April 3: 8.2 A11 redone using notation from Chapter 9; 9.3 A5;
9.4 Example 1; 9.5 Example 2; 9.6 A1; 9.7 Exercise 6. Discussion of 'Life
Expectancy' and comparison of smokers vs nonsmokers for males and females
age 20.
COURSE OUTLINE
Prerequisite: Grade 12 Mathematics. The three appendices in the textbook provide a review of the topics from high school mathematics that are most relevant for the course: exponents, logarithms, arithmetic and geometric progressions, and linear interpolation.
Degreecredit exclusions:
Math 1581 and Math 2581 (Business Mathematics I and II) and Math 2280 (Theory
of Interest).
For students in the Actuarial Mathematics
stream, Math 2280.03 is required in place of Math 2580.
Textbook and supplies: Mathematics of Finance, 5th edition, by P. Zima and R.L. Brown. McGrawHill Ryerson, publisher. This is a paperback and is available in the York bookstore. The course will cover nearly all of this text as well as some additional material on spreadsheets. The fifth edition was new last year; the principal differences from the fourth edition are an improved layout and expanded problem sets. You are strongly encouraged to purchase this latest edition, but if you already own a copy of the fourth edition and are short of funds, it is not worth updating; you will just have to make an extra effort to coordinate the material on your own. Another essential item is a basic scientific calculator with the ability to compute logarithms, exponentials, reciprocals, and powers.
Tests and exams: There will be three inclass tests  each worth 20% of the course grade. The exact dates for these have not yet been decided but you should expect them in midNovember, midJanuary and early March. There will be a 3hour final exam during the April examination period worth 40%. All our class tests will be "openbook" and open notes; for the final exam, this policy is still to be decided. Unfortunately, I have absolutely no control over the precise scheduling of the final exam; you must be prepared for it to fall on any date within the official exam period.
Grades: The official grades at York University are LETTER grades. Qualitative descriptions of these grades can be found in the York Calendar at thislink. Your test marks will be on a numerical scale because these have to be weighted and averaged in various ways, but THERE IS NO AUTOMATIC PREDETERMINED CORRELATION BETWEEN NUMERICAL GRADES AND LETTER GRADES in this course. In particular, the "numerical" grades you receive are NOT to be interpreted as percentages. The median letter grade will likely fall between C and C+.
Homework: Throughout the year, the everyday homework assignment is to do as many of the problems from the textbook as you find necessary to develop your understanding of the course material. These are not to be submitted nor graded; they should be viewed as practice for the tests that will contain, for the most part but not exclusively, questions very similar to those from the text. I will occasionally make specific suggestions concerning problems to do or to avoid. The back of the textbook contains the answers to all the numerical problems so it is quite practical to work on your own or together in small groups. Also, several copies of a complete solutions manual are available at the reserve desk in Steacie library and these can also be purchased at the York bookstore.
Excel: A component of the course is devoted to an introduction to the use of spreadsheets for financial calculations. We will be using Microsoftís EXCEL which functions on both the PC and Macintosh platforms. Some class sessions will be devoted to demonstrations of this software but students will be expected to work on their own in the microcomputer laboratories that are scattered throughout the Steacie Science building; these are open 24 hours per day, 7 days a week. The software manuals for EXCEL are on 2hour reserve at the desk in Steacie library; but you should rarely need these because the program itself has substantial online help files. To access these programs and courserelated data files, you will require a personal "ACADLABS" account; this is the name of the server on which EXCEL resides. To obtain such an account, follow the instructions concerning MAYA available at the Computing Help Services desk in Steacie. Note that this account is different from your email account.
Policy on missed tests or exams: No makeups will be given for the class tests; with proper documentation justifying the absence, the missed marks will be "forwarded" to the final exam. (However, this route, which results in a final exam worth 60%, is dangerous and is not recommended.) Students who are absent from the final exam without a properly documented medical reason receive a grade of F. Note that travel plans should not be made prior to the announcement of the final exam schedule: having a plane ticket for Hawaii or New Delhi on April 25 is NOT a legitimate excuse for absence from a final exam on April 29.
Syllabus: The pair of halfcourses 15812581 is equivalent to the full course 2580. Both will cover the entire textbook plus the material on spreadsheets. Roughly speaking, 1581 contains all of the easy material from 2580 while 2581 deals with the 'complications'. Students who intend to take 6 rather than 3 credits in this area will find a more balanced distribution of workload by taking 2580. In particular, the material on spreadsheets is distributed over the full year in MA2580 but is covered only in the second term of the 15812581 sequence.
Dates and deadlines: Last day to enrol without approval of the course director  Fri. Sept. 20; last day to enrol with the written approval of the course director  Friday Oct. 18; last day to DROP the course without receiving a grade  Friday February 7.
Office hours: Feel free to drop in at my office any time; I have no objection to unscheduled meetings; but if you wish to be certain to find me, it is best to set up an appointment by speaking with me before or after class or by sending me an email message. Written messages can also be left for me in the office of the mathematics department, N520 Ross.
EMail courtesies: Please send all email as plain text within the body of the message. Do not send attachments nor HTMLformatted mail. Also, if the name of your account is an alias (for example, dduck@disneyworld.com) I will not know who the mail is from unless you sign it; it also risks being accidentally discarded as junk mail.
Generalities: Students are responsible for familiarizing themselves with York University Policy and Regulations. These can be found in the Undergraduate Programmes Calendar. Take special notice of the Senate Policy on Academic Honesty; cheating and/or impersonation are subject to serious academic penalties. Photo identification will be required at all tests and examinations. Also, some test papers (randomly selected) will be photocopied before they are returned so that subsequent alterations can be detected.