## Theory of Interest

Module Title Theory of Interest
Module Level Level 1
Module Credits 5.00

#### Aims and Fit of Module

`Students gain a thorough understanding of the quantitative applications of interest and related functions. Students are required to understand how to price various financial instruments for different interest.`

#### Learning outcomes

```A. Classify and calculate all kind of rates of interest, find the future value and present value of a cash flow, and write the equation of value given a set of cash flows and an interest rate.

B. Derive formulae for all kinds of annuities; classify the notation of annuities and formulas for the present value of financial derivatives
C. Calculate the outstanding balance at any point in time
D. Calculate a schedule of repayments under a loan and identify the interest and capital components in a given payment; Given the quantities, except one, in a sinking fund arrangement calculate the missing quantity;  Calculate the present value of payments from a fixed interest security, bounds for the present value of a redeemable fixed interest security;
E. Given the price, calculate the running yield and redemption yield from a fixed interest security
F. Calculate the present value or real yield from an index-linked bond

G. Calculate the price of, or yield from, a fixed interest security where the income tax and capital gains tax are implemented
H. Calculate yield rate, the dollar-weighted and time weighted rate of return, the duration and convexity of a set of cash flows
```

#### Method of teaching and learning

`This module is delivered through formal lectures and tutorial classes`