Mathematics of Investment Prof. Donald H. Pelletier 2002-2003 Full year N506 Ross AS/MA 2580 6.0 BY 416-736-2100 ext.33339 Section B: Thursdays 7 to 10 pm in VH  C dhpell@mathstat.yorku.ca

I will have office hours this week from 2:00 to 3:30 on Wednesday, April 9 and on Thursday, April 10.

Contrary to an earlier announcement, the final exam WILL be open book.
The final exam for the course is scheduled for Tuesday, April 15 from 7 to 10 PM. The location is Stedman Lecture Halls A and F. Students from our Section B should go to Stedman F. It is still true that preparing a crib sheet, though now not necessary, is an excellent way to study for the exam.

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 semi-annual 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 hand-out 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 15-year call at 103; 6.5 A1, B1, 2; 6.6 A3,7 and B4.
March 6:  6.7 A3, 15; use of the Goal-Seek tool in EXCEL to compute yields on bonds; 7.1 Examples 1, 2, 3, 4; discussion of the built-in 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 Goal-Seek 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 non-smokers 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.

Degree-credit 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. McGraw-Hill 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 in-class tests --- each worth 20% of the course grade. The exact dates for these have not yet been decided but you should expect them in mid-November, mid-January and early March. There will be a 3-hour final exam during the April examination period worth 40%. All our class tests will be "open-book" 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.

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 2-hour reserve at the desk in Steacie library; but you should rarely need these because the program itself has substantial on-line help files. To access these programs and course-related 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 e-mail account.

Policy on missed tests or exams: No make-ups 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 half-courses 1581-2581 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 1581-2581 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.

E-Mail courtesies: Please send all e-mail as plain text within the body of the message. Do not send attachments nor HTML-formatted 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.