MACQUARIE UNIVERSITY
Faculty of Business and Economics
ACST201: Financial Modelling
WORKSHOP PROBLEMS (Week 01)
SIMPLE INTEREST AND SIMPLE DISCOUNT AND
PRICES & YIELDS OF SHORT TERM FINANCIAL INSTRUMENTS
1. Explain in words (without using any formulae or

Topic 4 : Level Annuities Certain
Basic Discrete Level Annuities
In arrears:
1
0
1
.
1
1
1
2
.
n-1
n
an
sn
In advance:
1
1
1
.
1
0
1
2
.
n-1
an
n
n
s
All on one time line:
1
1
.
1
1
0
1
2
.
n-1
n
n+1
an
an
sn
n
s
Copyright 2014 Macquarie University.
1
A s

ACST202/851 Mathematics of Finance
Topic 4 : Annuities Certain Level and pthly
Annuity Certain or Term Certain Annuity:
An annuity for which the term is known, as opposed to a life annuity where the term may depend
on whether a particular person is alive.

Topic 3 Forces & continuous scenarios
The force of interest
Consider i ( ) and d ( ) when i = 12% .
p
p
(Complete missing values in the table in your unit
notes.)
p
1
2
4
12
52
365
10,000
i( )
12.0000%
11.6601%
11.4949%
11.3866%
11.3452%
11.3346%
11.3329%

ACST202/851 Mathematics of Finance
Topic 3 Forces & continuous scenarios
The force of interest
Consider i ( p ) and d ( p ) when i = 12% .
p
1
2
4
12
52
365
10,000
i( p)
12.0000%
11.6601%
d ( p)
11.0178%
11.1738%
11.3866%
11.3452%
11.3346%
11.3329%
11.320

ACST202/ACST851 : Mathematics of Finance
Tutorial Solutions 2 : Inflation
Question 1
Denote the interest rate by i, the real interest rate by r and the inflation rate by f. Hence
1 + i = (1 + r )(1 + f )
(a)
1 + i = 1.0152 1.0346
i = 0.0503
The interest r

Topic 2 Inflation
We consider Price Inflation, measured by changes
in the Consumer Price Index (CPI).
We ignore Salary Inflation, measured by changes
in Average Weekly Earnings (AWE).
Traditionally we use effective rates, not nominal.
Example 1
A particul

ACST202/851 Mathematics of Finance
Topic 2 : Inflation
We consider Price Inflation, measured by changes in the Consumer Price Index (CPI).
We ignore Salary Inflation, measured by changes in Average Weekly Earnings (AWE).
Traditionally we use effective rat

Week 1 Interest; discrete scenarios
For ACST202 students: Summary of the
notations that have changed since ACST101
1.
2.
3.
Replace jm notation by i ( ) .
p
v = (1 + i ) . So you can discount for t time
periods at i per time period using v t instead of
t

ACST202/851 : Mathematics of Finance
Tutorial Solutions 1
Question 1
For many of these questions there is more than one method which will give the required answer.
The solutions simply give one possible approach. For ease of explanation, some of the solut

ACST202/851 : Mathematics of Finance
Topic 1 : Interest; discrete scenarios
For ACST202 students: Summary of the notations that have changed
since ACST101
1.
Replace jm notation by i ( ) .
2.
v = (1 + i ) . So you can discount for t time periods at i per

ACST202/851 Some Required Maths Knowledge
We arent going to attempt to list all the mathematical skills you need for this unit. There are too
many. Rather, the following sections list the required skills that we find students have often
forgotten and a fe

ACST851 Mathematics of Finance
Session 1 2014 Detailed Schedule & List of Topics
Week
1
Week
Begins
3 March
Topics Covered in Lectures
2
10 March
3
4
5
6
17 March
24 March
31 March
7 April
7
28 April
8
9
10
11
12
13
5 May
12 May
19 May
26 May
2 June
9 Jun

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/ Topic 5 - Varying Annuities
/ Quiz 05 - Varying Annuities
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Tuesday, 1 Apri

Topic 7 : Project Appraisal
Possible Tasks
Given the estimated cash flows arising from a
project
1.
Determine how (un)profitable the project is.
2.
Determine which of several projects is most
profitable.
Simplifications
Lecture examples have very few cash

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/ Quiz 03 - Forces - Continuous S

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SESSION 2 EXAMINATIONS NOVEMBER 2012
Unit:
ACST851 Mathematics of Finance
Time Allowed:
3 hours plus 10 minutes reading time
Number of Questions:
11
Total Marks:
100
Instructions:
You may attempt all questions. The number of marks allocated to each questi

ACST202/851 Mathematics of Finance
Solutions to 2012 Semester 1 Exam
130 students sat the exam, 104 in ACST202 and 26 in ACST851.
Question 1
Method 1
Anns purchase price is $10, 000 (1 0.0466 180 ) = $9, 770.19
365
The effective annual yield is i p.a. whe

END-OF-YEAR EXAMINATIONS 2011
Date:
ACST851 MATHEMATICS OF FINANCE
Tuesday 29 November 2011, 8:50am.
Time Allowed:
Three (3) hours, plus ten (10) minutes reading time
Number of Questions:
11
Total Marks:
100
Unit:
Instructions
You may attempt all question

SESSION 2 EXAMINATIONS NOVEMBER 2013
Unit:
ACST851 Mathematics of Finance
Time Allowed:
3 hours plus 10 minutes reading time
Number of Questions:
12
Total Marks:
100
Instructions:
You may attempt all questions.
The number of marks allocated to each questi

SESSION 1 EXAMINATIONS JUNE 2013
Unit:
Time Allowed:
ACST202/ACST851 Mathematics of Finance
3 hours plus 10 minutes reading time
Total Number of Questions:
11
Total Marks:
100
Instructions
You may attempt all questions.
There are 3 sections. Answer each s

ACST202/ACST851 : Mathematics of Finance
Tutorial Solutions 14 : Immunisation
Question 1
(a)
All compound interest symbols in this part are at 10%.
Let the income arising from the assets at time t be $ At
Let the outgo arising from the liabilities at time