Week 1 Lecture Slides 2011

# Week 1 Lecture Slides 2011 - ACTL1001 Week 1 Introduction;...

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Unformatted text preview: ACTL1001 Week 1 Introduction; Compound Interest and Spreadsheet Fundamentals Week 1 1 Outline: 1. Overview of traditional actuarial practice 2. Nominal, effective and continuously compounding rates of interest 3. Cash flow models and recurrence relations 4. Annuities and applications using equations of value 5. Spreadsheet applications on simple cash flow models Reading (Req) Sherris, 1.3-1.4, 2.1-2.3 (Recc) Sherris 1.1-1.2 Topic Objectives and Learning Approach I Understand the big picture of actuarial studies as a commercial discipline using skills from a variety of areas I Be familiar with the mathematics behind compound interest and cash flow valuation I Recognise financial instruments are basically cash flows structured by size, timing and certainty and they are all valued the same way using accumulation and discounting to the valuation date I Learn to use spreadsheets to solve compound interest questions and be able to set out the spreadsheet logically 2 / 1 What is Actuarial Studies? I I Modelling and analysis of risks : I Assess past events data and apply judgement to forecast future likelihood and size of such events I Seek other expert opinions to support analysis process, where past data is insufficient or non-existent I Anticipate, where possible, future uncertainties or events which have not yet happened (but may happen!) 3 / 1 What is Actuarial Studies? II I Quantitative management of future risks : I Determining possible financial losses due to unforeseeable circumstances I Deciding how to manage such risks (retain, transfer, avoid or exploit) I Calculating the sufficient level of financial capital I Selecting suitable financial instruments to manage these risks I Mixture of qualitative and quantitative skills (Can you identify which is which?) I Actuaries are valued for their judgement, which goes beyond mathematical expertise! 4 / 1 Commercial Application of Actuarial Science - Insurance I What is insurance? I Name some examples of insurance products I For the case of a motor vehicle insurance policy, where would the actuary be involved? And how? 5 / 1 Financial Mathematics I Fundamental tool of actuarial science I Actuaries developed the application of the mathematics of finance to insurance problems I Applications: I Insurance products I depend on the survival/death of a life, and also usually financial market returns I guaranteed values (death and maturity) - contingent on the value of the assets of the insurance fund I Superannuation annuities and other benefits contingent on the level of inflation, and/or financial returns I Loans for housing - repayments of loan capital and interest I Fixed interest securities - repayments of coupons, and face value 6 / 1 Terminology I Amount of the loan or investment - principal, capital or loan amount I repayable at a future specified date, the maturity date of the loan I repayments of capital and interest (typically level repayments) or interest only I Interest Rates I Interest is paid at different...
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## This note was uploaded on 07/28/2011 for the course ACTL 1001 taught by Professor Bernartwong during the Three '10 term at University of New South Wales.

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Week 1 Lecture Slides 2011 - ACTL1001 Week 1 Introduction;...

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