MATH 3356, Quantitative Theory of Interest, Section 001, 9:30-10:50 AM TR, Room MATH 015

Textbook

The Theory of Interest, by S. Kellison, 3nd Ed.

Additional References

Web Page

http://www.math.ttu.edu/~xiwang/3356/math3356.html

Instructor

Name: Dr. X. Alex Wang
Office: MATH 236
Office Hours: 2:00-3:00 PM, M-F.
Office Phone: 834-7626
E-mail: alex.wang@ttu.edu

Course Purpose

This course covers the mathematical theory of interest. It is recommended for students who plan to take the Exam FM given by the Society of Actuaries (SOA). This course is required for the Actuarial Science minor.

Calculator

A financial calculator is required for this course. A Java script web financial calculator is provided at
http://www.math.ttu.edu/xiwang/3356/TVM.html
for all the in-class calculations. Students can use it for the Homework assignments, tests, and the final exam. It can be down loaded to your phone or computer to use off-line.

Class Attendance

Students are cautioned that active participation is necessary for success. Attendance will be taken regularly and is mandatory. Students who have a perfect attendance will receive 20 bonus points. On the other hand, students with excessive absence will be reported to the students’ academic dean.

Steps for Success

  1. Attend lectures. All the homework problems will be worked out in detail in lectures. Therefore you should be able to finish homework assignments on time if you attend lectures.
  2. Finish homework assignments on time and keep a detailed records of the solution procedures. You can do well on tests this way because the test questions are from the homework assignments. Please email me or come to my office if you have any questions.

Course Outline

The information below serves a tentative time line for the material to be covered:
Week 1 & 2:
Simple interests and compound interests.
Week 3:
Present values, effective rates of discount, nominal rate of interest and discount, force of interest.
Week 4:
Varying interests, equation of values, unknown time.
Week 5:>
Unknown rate, determine time periods, annuity immediate, annuity due.
Week 6:
Annuity values on any date, perpetuities, unknown time of an annuity, unknown rate of an annuity, varying interest annuities.
Week 7:
Different payment and interest conversion periods, continuous annuities, payments varying in arithmetic progression.
Week 8:
Payment varying in geometric progression, continuous varying annuities, outstanding loan balance.
Week 9:
Amortization schedules, sinking funds.
Week 10:
Differing payment periods and interest conversion periods, varying series of payments.
Week 11:
Securities, price of a bond. Premium and discount bonds, valuation between coupon payment dates.
Week 12:
Determination of yield rates, callable and putable bonds, other secu- rities.
Week 13:
Net present values, dollar weighted and time weighted yield rates, yield curve and spot rates, forward rates, interest rate swap.
Week 14:
Macaulay and modified durations and convexities, first-order Macaulay and modified approximations, cash-flow matching, Redington immuniza- tion, full immunization.
Week 15:
Selected EXAM FM sample questions.

Expected Learning Outcomes

Students obtain the knowledge of key terms of financial mathematics and are proficient in the key procedures of financial mathematics. In particular the students will be able to demonstrate their ability to:

Grading Policy

Homework:

Online homework system WeBWorK is used for this course. The WeBWorK link for this course is at
https://webwork.math.ttu.edu/webwork2/xiwang.
Students are encouraged to print out the problems and work them off-line. Answers for any question can be submitted unlimited times before the due time. It is strongly recommended to finish each assignment by its due time. After the due time, the assignment will be closed.

If for some reason you can not make 100% correct on a particular assignment, you can still work on the problem you missed and check whether the answer is correct or not. So please keep working on any uncompleted assignments and keep a paper copy of the correct answers for future submission even after they are closed. All the homework assignments will re-open between May 22, 2024 and the time of the Final Exam for students to submit missed answers for credit. Note that this period is only for submitting answers. Do not wait until that time to do any of previous assignments. You will not have enough time to finish them before the Final Exam. Also, you cannot do well on the Midterm Tests if you do not finish the corresponding homework assignments.
The total home work points are determined by

Total Points You Received
Total Available Points
 × 250

i.e., the homework assignment score accounts for 25% of the total score.

Midterm Tests:

Three midterm tests of 150 points (i.e., 15% of the total score) each will be administered on the following days through WeBWork:
Test: Opens: Questions from:
1 2/17/24 9:30 AM - 2/18/24 9:30 AM HW1-HW4
2 3/23/24 9:30 AM - 3/24/24 9:30 AM HW5-HW8
3 4/20/24 9:30 AM - 4/21/24 9:30 AM HW9-HW12
Each test has 15 multiple choice questions from the corresponding homework assignments. Students can take each test three times within the 24-hour period and the time limit for each take is 90 minutes. The score will be the highest of the three.

Final Exam:

The final exam is comprehensive and will be worth 300 points (i.e., 30% of the total score). It will be administered through the WeBWork. The final exam opens from 7:30 AM on Monday, May 6 to 7:30 AM on Tuesday, May 7, 2024, and consists of 30 multiple choice questions from HW1-HW13. Students can take it three times within the 24-hour period and the time limit for each take is 180 minutes. The score will be the highest of the three.

Grading Scale:

The total points will be calculated as the sum of the Test 1, 2, 3, Homework, and Final Exam. The course grade will be determined by
A: 900-1000
B: 800-899
C: 700-799
D: 600-699
F: 0-599

Policy Statements

Relevant Texas Tech policies can be found here: