Matematica Financeira 216

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Financial Mathematics 216

Financial Mathematics 216: An Overview

Financial Mathematics 216 (or a similarly named course) likely represents an intermediate-level introduction to the quantitative methods used in finance. It builds upon foundational concepts acquired in introductory financial mathematics courses and delves into more complex models and applications.

Core Concepts

This course probably covers a range of topics, including:

  • Time Value of Money (Advanced): Building on basic TVM principles, the course could cover concepts like perpetuities with changing payments, variable interest rates, and more sophisticated amortization schedules. The course might also delve into the impact of inflation on investment returns and loan repayments.
  • Investment Analysis: Evaluation of investment opportunities becomes more rigorous. Students learn to calculate and interpret metrics such as Net Present Value (NPV), Internal Rate of Return (IRR), Profitability Index (PI), and payback period. Scenario analysis and sensitivity analysis may be introduced to assess project risk.
  • Bond Valuation: A significant portion of the course could be dedicated to understanding bonds, their characteristics, and the process of valuation. Topics would include yield to maturity (YTM), yield to call (YTC), duration, and convexity. The impact of interest rate changes on bond prices would also be examined.
  • Derivatives (Introduction): The basics of derivatives like futures, options, and swaps are likely to be introduced. The course would cover how these instruments are used for hedging and speculation. Simple option pricing models, such as the binomial model, may be discussed.
  • Risk and Return: Moving beyond basic risk measures, the course is likely to explore concepts like portfolio theory, diversification, and the Capital Asset Pricing Model (CAPM). Students would learn how to measure risk-adjusted returns and construct efficient portfolios.
  • Capital Budgeting: More advanced capital budgeting techniques would be explored, potentially including real options analysis. This section may cover incorporating project risk and uncertainty into investment decisions.

Mathematical Tools

Financial Mathematics 216 requires a solid understanding of mathematical concepts, including:

  • Calculus (especially differentiation and integration)
  • Probability and Statistics
  • Linear Algebra (matrix operations)

Applications

The concepts learned in this course are crucial for various applications, such as:

  • Investment Management
  • Corporate Finance
  • Risk Management
  • Financial Planning

Software and Tools

Students are often expected to use software tools like Microsoft Excel (with financial functions) or statistical packages like R to apply the concepts learned in class. Proficiency in these tools is crucial for practical problem-solving.

Prerequisites

The typical prerequisites would include an introductory financial mathematics course, basic statistics, and calculus.