Customer Reviews

The Theory of Interest, 2nd Edition

5 star:		(6)
4 star:		(7)
3 star:		(2)
2 star:		(4)
1 star:		(4)

 

 

In order to save the reader some time I have condensed the information contained in the twenty previous reviews to the bare essentials. For those of you who are taking the SOA/CAS Exam F/2, there are some things you should be aware of before you dedicate yourself to studying from this book.

1. The book is poorly written. Almost everyone, including me, agrees. The author does not have a way with words, he does not know how to motivate the material and he often chooses the most confusing and roundabout way of explaining the concepts (if he explains them at all). Furthermore, the notation can be quite confusing. He is not consistent with his variables.

2. The book focuses on theory. Expect to spend your time following proofs and derivations of formulas. The problem sets in the book focus on proofs and derivations. Have a firm grasp on Calc 1, Calc 2 and all the algebra that is entialed because Kellison will not spend the time to spell out his proofs and derivations step by step.

3. You need a supplement for working example problems. There are not enough computational problems in this book. Get a good manual that will prepare you specifically for the exams you are taking. Manuals will give you pointers about managing your time and can help you avoid common traps and pitfalls that arise during computations. I recommend getting an Atex or ASM manual. For instance, Harold Cherry's ASM Manual covers all of the topics found in Kellison, at greater depth, in the same order, and in plain english.

4. Many people have passed the exams using only manuals. Other's have passed using manuals and other texts such as "Schaum's Outline of Mathematics for Finance" or "Mathematics of Finance" by Cissell. Very few people pass without doing lots of practice problems

5. Others have passed the exam by using only this book. So it seems that this book is sufficient, but not necessary for preparing for the exam. Ultimately, you must be the judge. WHile it is certainly true that if you master this book you will be rewarded by a rich understanding of the theory of interest my personal recommendation for those studying for the exams is to devote most of your time and energy to practice problems. I would recommend using this book to flesh out your understanding as you go.

I believe most of the readers of this book are studying for the actuarial course 2 exam. I am pretty strong in math myself, and I was truly amazed how poorly the author presented the ideas. 10+ pages of notations introduced in the book and an innumerable number of formulas derived based on those notations defined. Ended up I checked out another book called "Mathematics of Finance" by Cissell published in 1973 (thank Eduardo for his suggestion). The fact is, only 3 basic techniques and a handful of 10 formulas or so are sufficient to tackle the exam. The rest is to work on more practice questions.

I am writing this review to warn those of you who are having a hard time studying this book. There is a much better choice out there, even it is a 30-year-old book. Just skipped those irrevelant sections such as calculating without a calculator etc, and you will save 100+ bucks from buying this book.

I am giving it a 2-star instead of 1 for the "accuracy" presented in the book.

Background: As I was studying for exam 2, I was at the same time completing my master's in math. I say this not because the math in Kellison is difficult at all -- it's not -- but I am very accustomed to reading textbooks on my own and digesting them.

This book, the sample test on the website, and my BA II Plus calculator got me through (the new) exam 2 with a 9. If that's what you want to do, then this book will help you do it. The material is there. I just worked through all of the exercises in the book for the sections that were in the exam syllabus. If I couldn't get through an exercise, I circled it and came back later. Sometimes I could do the exercise the second time through. Sometimes I just gave up. Close to exam time, I put Kellison aside and worked through the sample exam on the SOA website over and over until I had the problems almost memorized.

You definitely need the sample exam, or sample problems, or something besides just this book though. This book has the material in it, but the feel for the problems and test-taking strategies have got to come from somewhere else. The problems in Kellison are relatively tough and theoretical compared to the exam. When you do problems from Kellison, you won't have time pressure, whereas on the test you will. Also, the sample exam helps you learn how to eliminate wrong answers, which is a very useful skill but something you can't find in Kellison at all.

While Kellison can present the material to do well on the exam, he is not really so good at helping you understand it. For example, the concept of discount is still something of a mystery to me on a gut level. I eventually decided to learn it purely as a function of interest, a concept I grasp very well, but some friendly hints from Kellison would have been helpful. In fact a more friendly, warm tone from Kellison in general would have been helpful. It is not user-friendly.

The advanced stuff in chapter 9 is pretty much a waste, especially immunization. I still don't understand it. Fortunately, if I remember correctly, it didn't show up much on the exam, except maybe duration, which is easy to memorize. I would suggest ignoring chapter 9 totally, except for what you need to do the sample exam, and just make sure you really understand the other stuff.

Kellison's book is an appraisal industry standard. and is highly recommended for use by others who want to know how interest rates are calculated. For students who need supplementary material, I would recommend a good mathematics of finance textbook such as the later editions by Cissell, et al. or Simpson, et al. both titled, amazingly, Mathematics of Finance. Another excellent book of a less academic nature is Carrington, The Book of Interest and Money. For those who would understand both the maths and the calculator keystrokes, try the best book ever written (opinionated, aren't I) on this subject: Greynolds, et al. Financial Analysis Using Calculators: Time Value of Money. This book was published in 1980 by McGraw-Hill, but hasn't been superceded, to my knowledge, by anything better. Also, a must read in connection with this subject is regulation Z of the Truth-in-Lending Act. Study these materials and you will never have the wool pulled over your eyes by your friendly local banker, real estate broker, car finance company, loan shark, or rent-to-own furniture dealer. In fact, you'll know much more than they do and will be able to catch their mistakes (and they make them).

I'm a third-year undergraduate who has loved and excelled at mathematics my whole life. We're talking mostly A's and some B's all through an honors high school program and through advanced multivariable calculus in college.

I've decided to pursue actuarial work, and this fall I enrolled in a course called "Theory Of Interest," which is the introductory course for this subject at my university. The sole textbook for this course was (surprise) Kellison's "Theory Of Interest."

For starters, let's make perfectly clear that the pure math involved here is easy as pie. Anyone at this level should be able to do it in their sleep before they've even cracked open the book; arithmetic, algebra, and a smidge of some very basic and easy calculus. So this subject is all about learning the definitions and procedures and applying them to problem solving.

That said, I have never, ever, EVER had anything close to this much trouble with a mathematics course in my life, simply because I could not understand this textbook. As a highly detailed and analytical person, I rely heavily on the textbook to learn any subject. I expect to be taught the subject in a clear, comprehensive, logically sequenced manner, free of ambiguity and clutter. I expect to be given challenging problems free of ambiguity and confusing language. I expect the preceding chapter to prepare me for those problems.

This is the biggest train wreck of a math book I have ever read. Ambiguities abound. He convolutedly waxes poetic on inconsequential "observations" for PAGES (you can sense him giving himself a huge pat on the back for his scholarly flights of fancy) while leaving you frustrated to tears trying to find and decode basic explanations and definitions. I'd say that at least 40% of the problems have MAJOR ambiguities that make them literally impossible to know what he's asking (a previous reviewer gave a good example). You have to guess what he's asking and proceed from there. The combination of poor, confusing discourse followed by ambiguous, confusing problems is a potent 1-2 punch that will seriously discourage even the best of students.

My college professor actually called this book, and I quote, "revolting." (Why does he continue to use it for his class? You'll have to ask him; I myself have no idea.) Bottom line, don't even think about trying to learn this subject from this textbook unless a college course requires you to do so. Find the Cissell (I tracked down a copy halfway through my course and it helped immensely) and/or the Actex guides instead and/or ANYTHING else you can get your hands on. There's simply got to be a better way to learn the subject than this.

This text has everything you could possibly want to know about present value, future value, annuities certain, bond amoritization and virtually any subject in mathematical finance. It's an excellent introduction to actuarial study and notation but is frankly too dense for the average reader. It throws one new symbol after another at you and if you want to make it through the text you have to gobble them all up.

For an actuarial candidate the alternate text by Parmenter (Theory of Interest, Life Contingencies, and Pension Applications) offers a more manageble option and gives an introduction to higher level subject matter to boot.

The Kellison book has its advantages and disadvantages, but it depends on what your objective is. If you want to pass Actuarial exams use this book as a reference but don't bother with the excercises, use the Actek Manuals in past exams. It does an excelllent job at describing the Theory of Interest, Bonds but it really falls short on more advanced subject material such as Interest Rate Immunization, Brownian Motion/Stochastic Theory, derivatives and portfolio theory. Granted that these subjects might be beyond the scope of the text. But overall go out and buy it, I still haven't found a finance book that has completely fulfilled me but maybe that's because I'm too picky.

I too am using this book for a class (graduate level credit). I find it extremely frustrating to perfectly understand the examples given (too few in my opinion) only to find the exercises have gone off in totally different directions with one, two and sometimes three twists and turns thrown in to complicate matters. Exercises need to lead you to the complications, not begin with them.

This obsolete text has been forced on actuarial students for decades. Time to get rid of it.

The book is grossly deficient in practical applications. Yeah, it's called theory, but actuaries are supposed to apply the theories, not memorize them like so many abstract algebra concepts.

Buy the Schaum's Outline. If you can find it, get the book from Butcher & Nesbitt that has been out of print. Completely superior.
[...]
Time for a change.

This text is not very helpful at all. I used it in my Interest Theory class and started to use it for Course 2 exam, but both times came out confused. Luckily, in school, I had a great professor who did not bother using it as a teaching tool, rather as a source for homework problems. He used his own material to actually teach us the concepts. As for studying for Course 2, you will do much better using one of the manuals, such as Actex or BPP.

Still, it does provide some good explanations of concepts, if you can just figure out what it's saying. A bit wordy at times.. :-)