Department of Economics

Econ 3362 - Theory of Interest

Course Objectives and Assessment

General description: This course provides an introduction to financial economics. One key objective is to prepare students to take Exam FM (Financial Mathematics) of the Society of Actuaries (SOA), which is the same as exam 2 of the Casualty Actuarial Society (CAS). This exam is one of the key first steps toward a career in actuary. Therefore the objectives and outcomes follow closely the syllabus of Exam FM.

Objective 1: To learn, understand, and apply time value of money concepts.

Outcome:

  1. Students will be able to define and recognize the definition of present value, future (accumulated) value, principal, various interest rates and discount rates, outstanding balance, amortization, bond price, coupon rate, redemption value, face value, book value, yield rate, dividend, net present value, and internal rate of return.
  2. Students will be able to use time value of money concepts to perform calculations related to various annuities (level, increasing, and compound increasing), loans, bonds, stocks, and project appraisal (capital budgeting).
  3. Students will be able to use a financial calculator to perform the above calculations.

Assessment:

  1. Problem sets, tests, and final exam.

Objective 2: To introduce students to financial instruments.

Outcome:

  1. Students will be able to define and recognize the definition of forwards, futures, options, and derivatives.
  2. Students will be able to use the no-arbitrage principle to price derivatives in simple cases.
  3. Students will be able to show how to use derivatives for hedging and speculating.

Assessment:

  1. Problem sets, tests, and final exam.

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