MA542 Actuarial Finance I
Course Catalog Description
Introduction
This course introduces the fundamental concepts of financial mathematics with mathematical and statistical methods applied to calculating various streams of values, including interest, pricing, assets, liability management, capital budgeting, contingent cash flows and insurance.
Prerequisites: Basic knowledge or undergraduate class in linear algebra.
Course Objective
• Students learn various types of interest rate, time values of investment, equations of values
• Students learn level annuities, level perpetuity, nonannual interest and cash flows.
• Students learn concepts of loans, including principles, interest, outstanding balance and appraisal.
• Students learn financial instruments, including bonds, portfolios, yield rates, stock price and stock dividend.
• Students learn duration, portfolio immunization, and cash flow matching.
• Students learn interest swap and determination of interest rates.
Instructors
Associate Teaching Professor  Office  

Yi Li

yli6@stevens.edu  Kidde 225 
Campus  Fall  Spring  Summer 

On Campus  X 
More Information
Course Outcomes

• Students will understand and calculate time values of cash flows for a given interest rate.
• Students will understand and calculate level annuities, level perpetuities, arithmetic progression and geometric progression.
• Students will understand and compute the principle and interest of loans, outstanding balance and refinancing payments. Students will understand and calculate price, book value, redemption value, and face values of bonds, yield rate and coupon rate. Students will understand portfolios, yield rate and return, duration and convexity of cash flows, yield curves, stock price and dividend.
• Students will understand and construct investment portfolios to immunize cash flows, and to match present values and duration of liability of the cash flows.
• Students will understand and compute swap rate of an interest rate and its market value, components of interest rate, including real risk free rate, liquidity, premium and maturity risk premium in the contest of loans, mortgages, credit cards, bonds and government securities.
Course Resources
Textbook

Mathematics of Investment and Credit (Sixth Edition) by S. A. Broverman, 2015, ACTEX Publications.

Mathematical Interest Theory (Second Edition) by J. W. Daniel, and L.J.F. Vaaler, 2009, the Mathematical Association of America.

The Theory of Interest (Third Edition) by S.G. Kellison, 2009, Irwin/McGrawHill.r
Grading
Grading Policies
Weights  
1  Homework  30% 
2  Midterm  30% 
3  Final  25% 
4  Project  15% 
Maximum Possible  100% 
Lecture Outline
Topic  Homework  

Week 1  Introduction to Derivatives  Evaluation of Derivatives 
Week 2  Insurance and Hedging  Evaluation of Hedging and Risk 
Week 3  Capital Market and Pricing of Risk  Estimate Market Price and Risk 
Week 4  Optimal Portfolio Choice and Capital Asset Pricing Models  Evaluate Asset Allocations 
Week 5  Estimate the Cost of Capital  Evaluate Stocks and Stock Expectation 
Week 6  Introduction to Risk Management  Evaluate and Prioritize Market Risks 
Week 7  Capital Budgeting and Valuation with leverage  Evaluate Costs and Investments 
Week 8  Valuation and Financial Modeling  Evaluate Assets, Incomes, Expenses and Budgetin 
Week 9  Financial Operation and Option Valuation  Use Different Models to Evaluate Options 
Week 10  Long term and Short Term Financing  Determine Financial Liabilities, Evaluate Debttoequity Ratio 9 
Week 11  Financial Forwards and Future  Evaluate Trade for forwards and Future Contracts 
Week 12  Commodity Forwards and Future  Evaluate Contract for Commodities 
Week 13  Option Models  Use Mathematical Models to Evaluate Options 
Week 14  International Corporate Finance  Apply Mathematical Models to International Markets 