PROPOSED COURSE OUTLINE

Instructor: Arlan Rodrigo

e-mail: arlan_rodrigo@rocketmail.com

Course Number: Math 45

Course Title: Theory of Interest
Course Credit: 3
Course Requirements: 3 Long Exams = 2/3 of Final Grade
1 Final Exam = 1/3 of Final Grade
Attendance, Participation, Quizzes, Homework (Bonus points for Exams)
Passing Grade: 60%
Consultation Hours: By appointment (send me an e-mail)
Main References: The Theory of Interest 2nd edition (by Stephen Kellison)
ACTEX Study Manual Course 2 Society of Actuaries

Course Objectives:
At the end of the course, the student is expected to know the basic concepts relating to the Theory of
Interest and apply them to solve real-world problems in finance, accounting, and business. In particular, the
student is expected to know the following:

• Simple Interest and Compound Interest

• Measures of interest and discount
• Accumulation and Amount Functions, Present value and Future value
• Annuities and Perpetuities
• Discounted cash flow analysis, uniqueness of yield rate, reinvestment rates,
Time-weighted rates of interest
• Amortization and Sinking Fund Methods
• Bonds and Stocks, determining the Prices of Premium and Discount Bonds
• Bond Yield Rates and other types of Bonds

Exams:
There will be 3 written Long Exams with a cumulative weight of 2/3 of the Final Grade. Aside from
this, a Final Exam will be given at the end of the semester and this will make up 1/3 of the Final Grade. The
passing grade at the end of the semester is 60%. Standard college rules will be used in determining the Final
Grade to be marked in the grading sheet.

Exemption from the Final Exam:

If the student has obtained an average of 80% or higher for the 3 Long Exams, he/she can opt not to
take the Final Exam. If he/she does so, then the Final Grade will be the average for the 3 Long Exams.

Attendance, Participation, Quizzes, Homework:

Extra Bonus points or percentage points will be given to students who have a good attendance. Points
Earned from quizzes and homework also have their corresponding merit in the Examinations. Please refer to
the table at the end for more information.
Class Policy:
1. If a student is late for more than 15 minutes for a particular class period, then he will be marked
absent for that period.
2. There will be no make-up for missed quizzes and unsubmitted homework or homework submitted
past the deadline.
3. If a student misses a Long Exam for a valid reason (requires documentation), then he/she must take
the Final Exam and the grade for the missed Long Exam will be the grade of the Final Exam. If a
student misses a second Long Exam, then it is automatically ZERO regardless of the reason. A
student who misses an exam for an invalid reason will have a grade of ZERO for that exam.
4. Cheating, in any form, including copying homework will not be tolerated.

COURSE OUTLINE

Meeting No. Topic Reference/s Quiz Homework

1 Self-Introduction by the teacher and the students, Wikipedia / other external Reading
discussion of class policies, Overview of the subject sources assignment
2 The Accumulation Function and the Amount Kellison ( Ch. 1.2 – 1.5 ) YES
Function, The Effective Rate of Interest, Simple
Interest and Compound Interest
3 Present Value, The Effective Rate of Discount, Kellison ( Ch. 1.6 – 1.8 ) YES
Nominal Rate of Interest and Discount convertible
mthly
4 Forces of Interest and Discount, Varying Interest Kellison ( Ch. 1.9 – 1.10 ) YES
5 Obtaining Numerical Results, Determining Time Kellison ( Ch. 2.2 – 2.5 ) YES
Periods, The Basic Problem, Equations of Value
6 Unknown Time, Unknown Rate of Interest, Practical Kellison ( Ch. 2.6 – 2.8 ) YES
Examples
7 Annuity-Immediate, Annuity-Due, Annuity Values Kellison ( Ch. 3.2 – 3.4 ) YES
on Any Date
8 Perpetuities Kellison ( Ch. 3.5 ) YES YES
9 Unknown Rate of Interest, Varying Rate of Interest Kellison ( Ch. 3.8 – 3.9 ) YES
10 EXERCISES YES
11 EXAM 1
12 Annuities payable at a different frequency than Kellison ( Ch.4.2 – 4.3 ) YES
interest is convertible, Analysis of Annuities payable
LESS frequently than interest is convertible
13 Analysis of Annuities payable MORE frequently Kellison ( Ch.4.4 ) YES
than interest is convertible
14 Continuous Annuities, Basic Varying Annuities Kellison ( Ch.4.5 – 4.6 ) YES
15 More General Varying Annuities Kellison ( Ch.4.7 ) YES
16 Continuous Varying Annuities Kellison ( Ch.4.8 ) YES
17 Discounted Cash Flow Analysis, Uniqueness of the Kellison ( Ch.5.2 – 5.3 ) YES
Yield Rate
18 Reinvestment Rates, Interest Measurement of a Fund Kellison ( Ch.5.4 – 5.5 ) YES
19 Time-Weighted Rates of Interest Kellison ( Ch.5.6 ) YES YES
20 EXERCISES YES
21 EXAM 2
Meeting No. Topic Reference/s Quiz Homework

22 Finding the Outstanding Loan, Amortization Kellison ( Ch.6.2 – 6.3 )

Schedules
23 Amortization Schedules, Sinking Funds Kellison ( Ch.6.3 – 6.4 ) YES
24 Differing Payment Periods and Interest Conversion Kellison ( Ch.6.5 ) YES
Periods
25 Varying Series of Payments Kellison ( Ch.6.6 ) YES
26 Types of Securities, Price of a Bond Kellison ( Ch.7.2 – 7.3 ) YES
27 Premium and Discount Pricing of a Bond Kellison ( Ch.7.4 ) YES
28 Valuation Between Coupon Payment Dates Kellison ( Ch.7.5 ) YES
29 Determination of Yield Rates Kellison ( Ch.7.6 ) YES
30 Callable Bonds, Serial Bonds Kellison ( Ch.7.7 – 7.8 ) YES
31 EXERCISES YES
32 EXAM 3
33 Review For Final Exam ( Sample Exam to be given )
34 Review for Final Exam
35 FINAL EXAM

BONUS POINTS !!!

CRITERIA

Attendance Per 5 classes attended : + 1% in Long Exam

Complete Attendance : + 1% in Final Exam

Quizzes Per 10 points earned : + 1% in Long Exam

90% and up for total : + 3% in Final Exam

Homework Per 15 points earned : + 1% in Long Exam

95% and up for total : + 1% in Final Exam