Theory of Interest (M329F)

    Important external links
  • Link to the Sample SoA FM exam problems
  • Link to the Sample SoA FM exam solutions
  • Link to the Online FM exam


    • Class 1: January 22nd
    Orientation.
  • The departmental syllabus
  • First-Day Handout


    • Class 2: January 24th
    Accumulation and amount functions. Simple interest.
  • Slides: Sections 1.2-4 and 1.7-8.
  • Class notes: The amount and accumulation functions.


    • Class 3: January 27th
    The discount function. Simple discount.
  • Class notes: Review. The discount function.


    • Class 4: January 29th
    The effective discount rate. Compound interest.
  • Slides: Sections 1.6, 1.5, and 1.9.
  • Class notes: The effective discount rate.
  • Homework #1 -- due on Thursday, February 6th


    • Class 5: January 31st
    Compound discount.


    Class 6: February 3rd
    Net present value.


    Class 7: February 5th
    Nominal interest rates.
  • Slides: Sections 1.10, 1.11, and 1.12.
  • Class notes: NPV[cont'd]. Nominal interest rates.
  • Homework #1 -- Solutions
  • Homework #2 -- due on Thursday, February 13th


    • Class 8: February 7th
    Nominal discount rates. The constant force of interest.
  • Class notes: The constant force of interest.
  • In-Term One -- practice problems
  • In-Term One -- practice solutions
  • Quiz #1 -- due on Tuesday, February 11th


    • Class 9: February 10th
    The time-varying force of interest.
  • Class notes: The time-varying force of interest.
  • Quiz #1 -- Solutions


    • Class 10: February 12th
    Problem-solving session.
  • Homework #2 -- Solutions
  • Quiz #2 -- due on Tuesday, February 18th


    • Class 11: February 14th
  • In-term exam I
  • In-Term One -- Solutions


    • Class 12: February 17th
    Inflation.
  • Slides: Section 1.14.
    • Equations of value.
  • Slides: Sections 2.2 and 2.3.
    • The yield rate.
  • Slides: Sections 2.4 and 2.5.
  • Class notes: Inflation. Equations of value.
  • Homework #3 -- due on Tuesday, February 25th


    • Class 13: February 19th
    Dollar-weighted yield rates.
  • Slides: Section 2.6.
  • Class notes: Yield rates. Dollar-Weighted Yield Rates.
  • Quiz #2 -- Solutions


    • Class 14: February 21st
    Time-weighted yield rates.
  • Slides: Section 2.7.


    • Class 15: February 24th
    Annuities immediate.
  • Slides: Sections 3.2 and 3.3.
  • Class notes: Annuuities immediate.


    • Class 16: February 26th
    More on annuities immediate.
  • Homework #3 -- Solutions


    • Class 17: February 28th
    Annuities due.


    Class 18: March 2nd
    Non-integral terms. Deferred annuities certain.
  • Slides: Section 3.5.


    • Class 19: March 4th
    Perpetuities.
  • Slides: Section 3.4.


    • Class 20: March 6th
    Outstanding loan balances.
  • Slides: Section 3.6.
  • Homework #4 -- due on Friday, March 13th


    • Class 21: March 9th
    Non-level annuities.


    Class 22: March 11th
    Annuities with payments in geometric progression.
  • Slides: Sections 3.8 and 3.9.


    • Class 23: March 13th
    UT closed and no class due to COVID-19.
  • The updated First-Day Handout
  • Homework #4 -- Solutions
  • In-Term Two -- Topics
  • Sample In-Term Two -- Problems
  • Sample In-Term Two -- Solutions


    • Class 24: March 30th
    Getting used to Zoom
  • Mock In-Term Two -- Problems
  • Mock In-Term Two -- Solutions


    • Class 25: April 1st
  • In-term exam II
  • In-Term Two -- Solutions


    • Class 26: April 3rd
    Annuities with payments in arithmetic progression.
  • Slides: Sections 3.8 and 3.9.


    • Class 27: April 6th
    Continuously paying annuities.
  • Slides: Section 4.6.


    • Class 28: April 8th
    Amortization method.
  • Slides: Sections 5.2 and 5.3.
  • Homework #5- due Wednesday, April 15th


    • Class 29: April 10th
    The sinking-fund method.


    Class 30: April 13th
    Bond pricing.
  • Slides: Section 6.2.


    • Class 31: April 15th
    The premium-discount formula.
  • Slides: Sections 6.3 and 6.4.


    • Class 32: April 17th
    The bond amortization schedule.
  • Slides: Section 6.5.
  • Homework #5 -- Solutions


    • Class 33: April 20th
    Callable bonds.
  • Slides: Section 6.9.
  • Quiz #6 -- due on Wednesday, April 22nd
  • Homework #6 -- due on Monday, April 27th


    • Class 34: April 22nd
    More on the book value and callable bonds.
  • Quiz #6 -- Solutions


    • Class 35: April 24th
    The dividend-discount model. On arbitrage.


    Class 36: April 27th
    The term structure of interest rates.
  • Homework #6 -- Solutions
  • Quiz #7 -- due on Thursday, April 30th
  • Homework #7 -- due on Monday, May 4th


    • Class 37: April 29th
    Implied forward rates.
  • Quiz #8 -- due on Wednesday, May 6th


    • Class 38: May 1st
    Swaps on interest rates.
  • Old class notes: Interest-rate swaps (only pp.5-8 are relevant).
    • Duration.
  • Slides: Section 9.2.
  • Quiz #7 -- Solutions
  • In-Term Three -- Topics
  • Sample In-Term Three -- Problems
  • Sample In-Term Three -- Solutions


    • Class 39: May 4th
    More on duration.
  • Homework #7 -- Solutions


    • Class 40: May 6th
    Convexity.
  • Slides: Section 9.3.
    • Immunization.
  • Slides: Section 9.4.
  • Quiz #8 -- Solutions
  • Mock In-Term Three -- Problems
  • Mock In-Term Three -- Solutions


    • Class 41: May 8th
  • In-term exam III
  • In-Term Three -- Problems and solutions