Financial Calculus

CB1. Math

Course teaching is grounded in recent literature and practical experience. The course pedagogy is highly interactive and student-centred, inspired by the Team-Based Learning (TBL) model.

ME1. Prior autonomous study: individual reading of syllabus topics prior to each class, aimed at familiarising students with course content and identifying potential questions.

ME2. Theoretical and expository lectures: presentation of core concepts when required for the introduction of new material.

ME3. Demonstrative problem-solving by the lecturer: initial application of concepts and techniques to practical case studies, led by the lecturer.

Learning Outcomes (LO):

LO1. Apply fundamental financial mathematics concepts and methods to active and passive financial transactions;

LO2. Characterize and compare the different financing options available to public and private entities;

LO3. Evaluate the key determinants of the effective financial cost inherent to various financing and investment solutions;

LO4. Prepare and interpret amortization schedules and other supporting documents for financial transaction analysis.

Competencies to be Developed (CD):

CD1. Ability to independently select and apply financial calculation formulas and techniques to solve problems associated with active and passive transactions;

CD2. Ability to analyze, compare, and select the most suitable financing solutions on the market according to the specific needs of public or private entities;

CD3. Ability to determine and interpret the effective cost of capital (incorporating interest rates, fees, taxation, and APR/APRC) to support financial decision-making;

CD4. Proficiency in constructing, validating, and interpreting amortization schedules and financial reports to support debt and investment management.

P1 – Compounding and Discounting Operations

1.1 – Interest, financial transactions, and interest rates

1.2 – Compounding regimes

1.2.1 – Simple interest regime

1.2.2 – Compound interest regime

1.2.3 – Continuous compounding regime

1.3 – Interest calculation in banking practice

1.4 – Comparison between different compounding regimes

1.5 – Discount methods

1.5.1 – True discount (mathematical discount)

1.5.2 – Commercial discount (bank discount)

1.5.3 – Compound discount

P2 – Interest Rates

2.1 – General concepts

2.2 – Proportional rates and equivalent rates

2.3 – Nominal rates and effective rates

2.4 – Average investment rate

2.5 – The effect of taxation: gross rates and net rates

2.6 – Annual Percentage Rate of Charge (APRC)

P3 – Financial Equivalence of Capital

3.1 – Equivalent financial values

3.2 – Valuation rate (discount rate)

P4 – Sources of short-term financing

4.1 Discounting of Commercial Paper & Credit Instruments

4.1.1 – Concept and characteristics of bills of exchange

4.1.2 – Discounting bills of exchange

4.1.3 – Concept and characteristics of promissory notes

4.1.4 – Effective cost of discounting

4.1.5 – Debt renewal operations: renewal of bills of exchange

4.2 Factoring

4.3 Revolving Credit Facility

4.4 Confirming

P5 – Annuities

5.1 – Concept and characteristics of annuities

5.2 – Classification of annuities

5.3 – Two fundamental cases

5.3.1 – Amortisation annuities with constant payments

5.3.2 – Accumulation annuities with constant payments

5.4 – Annuities due (payments in advance)

5.5 – Deferred annuities

5.6 – Fractional / Payable multi-period annuities

5.7 – Constant perpetual annuities (perpetuities)

P6 – Medium and Long-Term Sources of Finance

6.1 – Traditional loans (Bank loans)

6.1.1 – Concept and characteristics of traditional loans

6.1.2 – Loan repayment systems (bullet repayment and periodic repayments)

6.1.3 – Construction of amortisation schedules

6.1.4 – Comparison of periodic repayment systems

A. PERIODIC ASSESSMENT

MA1. Through a continuous assessment system comprising two tests (TEST 1 and TEST 2), each with a duration of 90 minutes.

- Each test will be marked on a scale of 0 to 20. Students must achieve a minimum grade of 8.0 marks (without rounding) in each test.

- Students pass the module when the arithmetic mean of both tests results in a grade equal to or higher than 9.5 marks, on a scale of 0 to 20.

- Eligibility for this assessment method is subject to a minimum attendance rate of 80% of all classes.

Final Classification Formula: CF = 0.5 × TEST 1 + 0.5 × TEST 2

B. FINAL EVALUATION

MA2. Through a final examination, in accordance with the regulations set out in the ISCAC Undergraduate Degree Regulations. Students who obtain a grade of no less than 9.5 marks will pass the module. The written examination will cover the entire syllabus and last for 2 hours.

Important Note: Students who opt for assessment method A) and fail to obtain an overall final grade of 10 marks or above may sit the examination during the regular exam period under assessment method B).

NAO