Instructor

Mr.Steve Kopp Mr. Kevin Aselstine (term 1)

Sec 001 002

The University of Western Ontario ACTUARIAL SCIENCE 2053 Mathematics for Financial Analysis -- 2013-14 Day/Time Location email
MWF 11:30- 12:20 Tu 10:30-11:30 Th 9:30-11:30 Nat Sci Room 7 SEB 1059 [email protected] [email protected]

Office/Phone
WSC 284/x86288 WSC 276/

Prerequisites: Grade 12U calculus (or equivalent), PLUS one full university level course (or 2 half courses) from Mathematics, Applied Mathematics, Calculus, or Linear Algebra Anti-requisites: Actuarial Science 2553A Students are advised that they are responsible to ensure that they possess the necessary prerequisites (or have written special permission) and that de-registration may occur at any time if they lack the prerequisite or have taken an anti-requisite course. Textbooks Custom Package combines the first 7 chapters of Mathematics of Finance (7th Edition by Brown-Kopp) and 5 chapters of a study note textbook (by Kopp) $124.95 in UWO bookstore Course Outline (course is divided into 2 terms): Text Chapter Topic 1. Custom Textbook 1 Simple Interest 2 Compound Interest (skip section 2.9) 3 Simple Annuities 4 General Annuities 5 Repaying A Debt 6 Bonds (skip Serial Bonds of section 6.7) 2. Custom Textbook 7 Business Decisions, Capital Budgeting, Depreciation 8 Fixed Income Investments 9 Probability and Life Tables 10 Life Annuities 11 Life Insurance 12 Life Insurance Expenses Term Tests 1. Test 1: Friday, October 25, 2013, 7 to 9 pm (rooms TBA) topics to be posted on Sakai 2. Test 2: Friday, February 28, 2014, 7 to 9 pm (rooms TBA) topics to be posted on Sakai The format may either be multiple-choice questions only or a combination of multiple choice and short written answer questions. A formula page will be provided for both tests. NOTE: There is NO makeup test to either Test 1 or Test 2. If you miss either test (with a valid reason), the 18% weight will be moved to the mid term exam (if you miss Test 1) or the final exam (if you miss Test 2). You should think twice (or 3 times) before deciding to miss a test.

Mid Term Exam To be scheduled during the Christmas Exam period Chapters 1, 2, 3, 4, 5, and part of chapter 6 The midterm exam will cover all material from the first term, including material that was tested on Test 1. It will be a 3-hour exam that may either be multiple choice questions OR a combination of multiple choice and short written answer questions. A formula page will be provided. Final Exam Scheduled for the final exam period. Rest of Chapter 6, all of chapters 7, 8, 9, 10, 11, 12 The final exam will be a 3-hour exam that may either be multiple choice questions OR a combination of multiple choice and short written answer questions. A formula page will be provided. It will be based on material covered in class only since the midterm exam but will include material from the 2nd term test. You will also need a pocket calculator for the tests and the exams. In-class Quizzes There will be 8 (4 per term) short, one written answer question quizzes that will be given at the very start of class on the following Wednesdays (section 001) OR Thursdays (section 002): 1 September 25, 2013 (001) 5 January 22, 2014 (001) September 26, 2013 (002) January 23, 2014 (002) 2 October 16, 2013 (001) 6 February 12, 2014 (001) October 17, 2013 (002) February 13, 2014 (002) 3 November 6, 2013 (001) 7 March 12, 2014 (001) November 7, 2013 (002) March 13, 2014 (002) 4 November 27, 2013 (001) 8 April 2, 2014 (001) November 28, 2013 (002) April 3, 2014 (002) The quizzes will start right at the start of the class on the above dates and you will have 15 minutes to complete the assigned question(s) do NOT be late for class on these dates as you will NOT be given extra time The quizzes will consist of 1 or 2 question (or perhaps one question with multiple parts) that will be based on material covered over the past 2-3 weeks of classes You will show ALL your work in solving the question (as part marks will be available) The quizzes will be out of 8 marks you will get 2 out of 8 just for signing your name and handing in a blank answer Only your best 6 out of 8 quizzes will count in your final mark (so you can miss up to 2 quizzes for any reason and you do not need any medical documentation). Evaluation Original If you do poorly on one test Quizzes (best 6 out of 8) 10% 10% 10% Test 1 18% 9% 18% Mid Term 27% 36% 27% Test 2 18% 18% 9% Final Exam 27% 27% 36% The marking scheme that gives a student the higher final mark will be the one used for that student.

Course Sakai Web Page The web page will contain: 1. A copy of this course outline 2. Copies of tests and exams from the previous year (with solutions) 3. Solutions to the exercises in the 7th edition of the textbook (as pdf files) 4. Weekly updates and information about the course that you need to know 5. Daily class notes (which will be incomplete to be filled in during the classes) and other things that are relevant to the course. 6. Marks of quizzes and tests as they are marked. Course Objectives This course is not intended to make you financial geniuses or to suggest what investments or insurance products you should be buying. Instead, the objective of this course is to show you how you can do many useful financial calculations yourself, either using a calculator, pen and paper OR using a computer spreadsheet. Some of the calculations you will be able to do by the end of the course include: 1. Accumulating & discounting a single sum of money using either simple or compound interest 2. Accumulating & discounting a series of payments made at equal time intervals using compound interest 3. Calculating loan payments, including mortgage payments 4. Depreciating physical assets 5. Determining the rate of return on an investment 6. Determining the price of a bond or the rate of return on a bond 7. Understanding the yield curve and the risks involved with a fixed income investment In the last part of the course you will be introduced to the fundamentals of financial calculations involving life contingencies. You will be able to: 1. Perform calculations involving probabilities of living or dying within a certain period of time 2. Calculate how much money you need at a certain age to purchase an annuity paying you a certain amount of money every year or every month for the rest of your life 3. Calculate the premium to be paid for a certain type of life insurance policy Your ability to do all the above (and more) will be evaluated through written answer questions on the in-class quizzes and through a combination multiple choice/written answer questions on two tests and two exams.

Classroom Environment We have adopted a Mutual Expectations policy governing the classroom environment and all work submitted by students. [The full text of the policy can be found on the Statistical and Actuarial Science departmental web page, www.stats.uwo.ca, by clicking on the Undergraduate section]. In summary, all interactions between students and faculty should be governed by the principles of courtesy, respect and honesty. Attendance Kings College views classroom attendance as a very important part of the learning process. You are expected to attend all classes. You are advised that excessive absenteeism may result in being debarred from the final examination. Policy on e-mail communication You are welcome to communicate with your instructor by e-mail, but e-mail communication should only be used to provide them with information or to ask a question that requires a brief response. For more lengthy discussions and for discussions on lectures/course material please see your instructor during their scheduled office hours or by appointment. If you do e-mail them, please use your UWO account, as these are often the only emails read (as e-mails sent from other addresses often get spammed). What Do You Do if You Miss a Course Requirement Due to Illness or Special Circumstances? If you are unable to meet a course requirement due to illness or other serious circumstances, you must provide valid medical or other supporting documentation to the Dean's office as soon as possible and contact your instructor immediately. It is your responsibility to make alternative arrangements with your instructor once the accommodation has been approved and the instructor has been informed. In the event of a missed final exam, a "Recommendation of Special Examination" form must be obtained from the Dean's Office immediately. For further information please see: http://www.uwo.ca/univsec/handbook/appeals/medical.pdf If you require academic accommodation due to illness, you should use the Student Medical Certificate when visiting an off-campus medical facility. The form can be found here: https://studentservices.uwo.ca/secure/medical_document.pdf Or, request a Record's Release Form (located in the Dean's Office) for visits to Student Health Services.

Approximate Weekly Course Outline:

Week 2013 Sept 9-13 Sept 16-20 Sept 23-27 Section Accumulating/discounting simple interest (sect 1.1-1.2) Equations of value, partial payments, simple discount (section 1.3 to 1.5) Accumulating/discounting with compound interest, equivalent rates, fractional periods (section 2.1-2.4) In-class Quiz #1 Wed/Thurs, September 25/26 at start of class Sep 30-Oct 4 Determining the time and interest rate, equations of value, changing rates (section 2.4 to 2.7) Oct 7-11 Other applications, ordinary annuities (section 2.7, 3.1, 3.2) Oct 15-18 Ordinary Annuities, annuities-due, deferred (secton 3.1-3.4) In-class Quiz #2 Wed/Thurs, October 16/17 at start of class Oct 21- 25 Determining term/rate of return (section 3.5, 3.6); REVIEW Test 1 Friday, October 25 7:00 to 9:00 pm (2 hours) Chapters/Sections TBA Oct 28-30 General annuities, mortgages, (sect 4.1-4.2) Oct 31, Nov 1 NO classes middle of term break Nov 4-8 Perpetuities, Varying annuities (section 4.3, 4.4) In-class Quiz #3 Wed/Thurs, November 6/7 at start of class Nov11-15 Amortization (sect 5.1), Outstanding balance (section 5.2) Nov 18-22 Refinancing a loan (sect 5.3); Sum of digits method (sects 5.4) Nov 25-29 Sinking Funds (sect 5.5/5.6/5.7) Bonds Purchase price (sects 6.1/6.2) In-class Quiz #4 Wed/Thurs, November 27/28 at start of class Dec 2-6 Premium and Discount, Callable Bonds (section 6.3/6.4); REVIEW Midterm Exam To be scheduled during the Christmas Exam period (3 hours) Week 2014 Jan 6-10 Price between dates, rate of return, other bonds (section 6.5, 6.6,6.7) Jan 13-17 Net present value, internal rate of return, capitalized cost (sects 7.1-7.3) Jan 20-24 Depreciation (section 7.4); Fixed income investments, yield curve, forward interest rates (sections 8.1, 8.2), In-class Quiz #5 Wed/Thurs, January 22/23 at start of class Jan 27-31 Types of risks (section 8.3); Duration, convexity (sections 8.4 to 8.7) Feb 3-7 Probability, life tables probabilities (section 9.1 to 9.5) Feb 10-14 Expectation of life, select mortality (section 9.6 and 9.7) In-class Quiz #6 Wed/Thurs, February 12/13 at start of class Feb 24-28 Pure endowments (section 10.1/10.2/10.3); Review Test 2 Friday, February 28 7 pm to 9 pm (2 hours) Chapters/Sections TBA Mar 3-7 Whole life, temporary, deferred, varying life annuities (sect 10.4-10.7) Mar 10-14 Life Annuities payable more than once a year, whole life insurance (section 10.8, 11.1, 11.2, 11.3) In-class Quiz #7 Wed/Thurs, March 12/13 at start of class Mar 17-21 Net annual premiums, term and endowment insurance (sect 11.3 to 11.6) Mar 24-27 Deferred/varying insurance (section 11.6 to 11.8) Mar 31, April 1-4 Expenses; Types of life insurance expenses (section 12.1, 12.2) In-class Quiz #8 Wed/Thurs, April 2/3 at start of class April 7-8 REVIEW Final Exam To be scheduled in final exam period