Description

The unit develops the techniques required to deal with compound interest problems more complex than those discussed in ACST101. Topics include the force of interest and its relation with the annual rate of compound interest; loans repayable by instalments of principal and interest; the effect of income and capital gains taxes; the use of discounted cash flow techniques in project appraisal; simple stochastic interest rate models; unit-pricing systems; yield curves, matching and immunisation; forward rate agreements; replicating portfolios and hedge portfolios. It is assumed that students are able to use spreadsheets.