Faculty of Business and Economics

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Monash University

Monash University Handbook 2010 Undergraduate - Unit

6 points, SCA Band 3, 0.125 EFTSL

FacultyFaculty of Business and Economics
OfferedClayton First semester 2010 (Day)


Topics covered in this unit include: an introduction to mathematics of finance, rates of interest, rates of discount, present and accumulated value of cash flows under fixed and variable rates of interest, equation of value, applications to debt and retirement income stream markets, in particular the Australian annuity, short-term money market and capital markets; factors affecting accumulation under the Superannuation Guarantee Scheme; economic factors affecting the yield curve, zero coupon bonds, zero coupon bond yield curve, pricing bonds, bond yields, callable bonds, effect of tax on yield, annuity bonds, hybrids, CGB futures and options on futures, interest rate risk management by immunisation, stochastic models for cash flows and stochastic rates of interest, calculation of moments of present values and accumulations, arbitrage-free asset pricing, hedging, optimal conversion of lump sum to a retirement income stream.


The learning goals associated with this unit are to:

  • describe conventions used in short term money and capital markets, and explain the implications for pricing of products in these markets
  • apply quantitative skills required for pricing and risk management associated with money, capital and retirement income stream markets
  • apply critical thinking, problem solving and presentation skills to individual and/or group activities dealing with debt markets and fixed income securities.


Within semester assessment: 20%
Examination (3 hours): 80%

Chief examiner(s)

Roger Gay

Contact hours

Three hours per week


AFC2000, AFC1100 (pre 2009) or AFC2100 (pre 2009)