MIDLANDS STATE UNIVERSITY

FACULTY OF COMMERCE
DEPARTMENT OF BANKING & FINANCE

Module Outline: Financial Mathematics 1A (BF104)

Lecturer: Dr N. Nkomazana Email: nkomazanan@msu.ac.zw
Office: Lecture Room 3, Batanai Campus

1. PREAMBLE
Financial Mathematics is a building block to learners in the field of banking and finance. This
module introduces a number of techniques used to evaluate financial information and focus
particularly on the use of such information in quantitative analysis of industrial, commercial
or financial business decisions. The module also equip students with the ability to apply their
mathematical knowledge and skill to solve problems in familiar and unfamiliar contexts,
employing the analytical and creative powers in mathematics. The mathematical topics
covered are prerequisite for the study of concrete financial problems.

2. AIMS
2.1 To equip students with relevant mathematical skills that are prerequisite in the study of
the banking and finance programme.
2.2 To demonstrate the applicability of mathematics to problems drawn from industry,
commerce and financial services.

3. OBJECTIVES
On completion of this module, successful students will be able to:
3.1 Apply the basic and advanced rules of differentiation to various problems.
3.2 Compute both the indefinite and definite integrals using integration by parts and
integration by substitution.
3.3 Understand the important terms and concepts in probability theory.
3.4 Apply probability rules to solve problems and understand the probability rules frequently
used by finance practitioners.
3.5 Understand the different ways of calculating interests and the dynamics of cash flows,
including the time value of money.
3.6 Calculate the present and future values of various types of annuities.
3.7 Apply the concepts of annuities in solving problems involving amortisation and sinking
funds.

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4. ASSESSMENT
Coursework will constitute 30% of the total mark, with the final examination, at the end of
the semester, contributing the remaining 70%. Coursework will be made up of two tests to be
administered during the semester.

5. MODULE CONTENT
5.1 Overview of Calculus
 Differentiation
 Differentiation from the first principle
 Sums, differences, powers, product and quotient rules
 The chain rule
 Implicit differentiation
 Differentiation of exponential functions
 Integration
 Indefinite integrals
 Definite integrals
 Integration by parts
 Integration by substitution
5.2 Probability Concepts
 Important terms and concepts in probability theory
 Random variables
 Events
 Outcomes
 Conditional probability
 Joint probability
 Permutations and combinations
 Probability rules
 Addition rule
 Multiplication rule
 Rules frequently used by finance practitioners
 Expected value
 Standard deviation
 Covariance
 Correlation
5.3 Simple Interests and Discounts
 Simple interest and discounts
 Time lines
 Counting days
 The time value of money
5.4 Compound Interest
 Compound interest
 Nominal and effective interest rates
 Odd-period calculations
 Fractional compounding

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  Continuous compounding
 Doubling times
5.5 Annuities
 Ordinary annuity
 Annuity due
 Perpetuities
 Present and future values of annuities
 Deferred annuities
 Increasing annuities
5.6 Application of Annuities in Banking and Finance Issues
 Amortisation and amortisation schedules
 Sinking funds

TEXTBOOKS
A number of alternative textbooks are considered suitable for the material covered in this
course. The following are some of the recommended texts:
 Day, A. (2005) Mastering Financial Mathematics in Microsoft Excel: A practical
guide for business calculations. Prentice Hall Financial Times:: Great Britain
 McCutcheon, J. J. and W.F Scott (1995) An introduction to the mathematics of
finance. Butterworth Heinemann: Oxford
 UNIVERSITY OF SOUTH AFRICA (2004) Introductory financial mathematics.
UNISA: Pretoria
 Sydsaeter, K. and P. Hammond (2006) Mathematics for economics 1. University of
Zimbabwe publications.

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