MA542 Actuarial Finance I

Course Catalog Description


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, non-annual 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.


Associate Teaching Professor Email Office
Yi Li 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


  • 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/McGraw-Hill.r


Grading Policies

1 Homework 30%
2 Mid-term 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 Debt-to-equity 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