Course outline: Understanding Financial Maths

In-house Training

Capital Markets & Derivatives Training specialise in developing and delivering bespoke in-house training courses and programmes. This sample course outlines the content and structure of a typical course.

Objective: This course is designed to provide delegates with a clear and simple explanation of the time value of money and how it is used in practice in the valuation of fixed income instruments.
Course aims:
  • Explain the concept of time value of money
  • Explain the different types of interest and day count conventions
  • Study the use of discount factors and functions
  • Apply the calculations to the valuation of money market and fixed income instruments

Time Value of Money

This section explains the relationship between the value of money today and the value of money (cash flows) in the future.

  • Time value of money
    • working out the present value and future value of money
    • calculating the net present value of a series of cash flows
    • discount factors and discount functions
    • valuing annuities and perpetuities
  • Calculating interest
    • simple versus compound interest
    • nominal versus effective rates
    • day count conventions
    • interpolation and extrapolation of rates

Application of TVM Techniques to the Valuation of Financial Instruments

This section reviews the different interest rate instruments and how they are priced and valued using the TVM techniques described earlier.

  • Valuing money market instruments
    • discount v par instruments
    • valuing T-Bills
    • valuing CD's
    • calculating a holding period return
    • "riding the yield curve"
  • Calculating forward rates
    • using money market instruments to derive the implied forward rate
    • identifying the cash flows of a FRA
    • deriving implied forward rates from zero coupon discount factors
  • Applying TVM techniques to value fixed income instruments
    • identifying where the price comes from
    • pricing on non-coupon dates: clean v dirty prices
    • understanding accrued interest
    • deriving zero coupon discount factors and using them to value a bond

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