The module aims to present the basic notions and facts underlying Actuarial Science, thereby providing a foundation for further study of Actuarial Science.
Module learning outcomes
After successful completion of the module students are able to
• Describe some basic financial fixed income instruments;
• Explain the use of compound interest and discounting in determining the time value of money;
• Apply discounted cash flow techniques for investment project appraisal;
• Analyse some commonly used derivative instruments;
• Describe and analyse the term structure of interest rates.
Module content
Syllabus
Cash flows, including a zero coupon bond, fixed interest security, index-linked security, cash on deposit, equity, “interest only” loan, repayment loan or mortgage, and an annuity certain.
The time value of money and the concepts of compound interest and discounting.
Interest rates and compounding methods.
Real versus money interest rates.
Present and accumulated value of a stream of payments.
Compound interest functions and the relationships between them.
Equation of value.
Loan repayment by regular instalments of interest and capital.
Discounted cash flow techniques and their use in investment project appraisal.
Investment and risk characteristics of assets available for investment purposes, including: fixed-interest government borrowings, fixed-interest borrowing by other bodies, shares and other equity-type finance, derivatives.
Analysing elementary compound interest problems.
Forward contracts, forward price and the value of a forward contract.
Term structure of interest rates (par yield, yield to maturity, spot rates and forward rates).
Duration and convexity of a cash flow sequence; portfolio immunisation.
Discrete time stochastic interest rate models.
Assessment
Task
Length
% of module mark
Closed/in-person Exam (Centrally scheduled) Introduction to Actuarial Science
2 hours
70
Essay/coursework Coursework : Introduction to Actuarial Sciences
N/A
30
Special assessment rules
None
Reassessment
Task
Length
% of module mark
Closed/in-person Exam (Centrally scheduled) Introduction to Actuarial Science
2 hours
70
Essay/coursework Coursework : Introduction to Actuarial Sciences
N/A
30
Module feedback
Current Department policy on feedback is available in the undergraduate student handbook. Coursework and examinations will be marked and returned in accordance with this policy.
Indicative reading
Actuarial mathematics. Bowers, N. L.; Gerber, H. U.; Hickman, J, C. et al. 2nd ed., Society of Actuaries, 1997. ISBN: 9780938959465.
An introduction to the mathematics of finance. McCutcheon, J. J.; Scott, W. F. Heinemann, 1986. ISBN: 9780434912285.
Mathematics of compound interest. Butcher, M. V.; Nesbitt, C. J. Ulrich's Books, 1971. ISBN: 9780960300013.
Theory of financial decision making. Ingersoll, J. E. Rowman & Littlefield, 1987. ISBN: 9780847673599.
The theory of interest. Kellison, S. G. 3rd ed. Irwin, 2008. ISBN: 9780073382449.
Life insurance mathematics. Gerber, H. U. 3rd ed. Springer; Swiss Association of Actuaries, 1997. ISBN: 9783540622420.