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Unformatted text preview: Materials for Study, 2010 Exam 2 2009, Casualty Actuarial Society, All Rights Reserved E2-1 Exam 2 Financial Mathematics Exam 2 is a three-hour, multiple-choice examination that is administered by Preliminary Actuarial Examinations/SOA and is identical to SOA Exam FM. The examination is jointly sponsored and administered by the CAS, SOA, and the Canadian Institute of Actuaries (CIA). The examination is also jointly sponsored by the American Academy of Actuaries (AAA) and the Conference of Consulting Actuaries (CCA). Exam 2 is administered as a computer-based test. For additional details, please refer to Computer-Based Testing Rules and Procedures (http://www.beanactuary.org/exams/cbt.cfm). The goal of the syllabus for this examination is to provide an understanding of the fundamental concepts of financial mathematics, and how those concepts are applied in calculating present and accumulated values for various streams of cash flows as a basis for future use in: reserving, valuation, pricing, asset/liability management, investment income, capital budgeting, and valuing contingent cash flows. The candidate will also be given an introduction to financial instruments, including derivatives, and the concept of no-arbitrage as it relates to financial mathematics. Exam 2 assumes a basic knowledge of calculus and an introductory knowledge of probability. The following learning objectives are presented with the understanding that candidates are allowed to use specified calculators on the exam. The education and examination of candidates reflects that fact. In particular, such calculators eliminate the need for candidates to learn and be examined on certain mathematical methods of approximation. Please check the Syllabus Updates section of the CAS Web Site for any changes to the exam or syllabus. Information about Study Notes is available in the Study Resources section. LEARNING OBJECTIVES I. Interest Theory A. Time Value of Money 1. The candidate will be able to define and recognize the definitions of the following terms: a. Interest rate (rate of interest) b. Simple interest c. Compound interest d. Accumulation function e. Future value f. Present value/net present value g. Discount factor h. Discount rate (rate of discount) i. Convertible m-thly j. Nominal rate k. Effective rate l. Force of interest m. Equation of value 2. The candidate will be able to: a. Given any two of interest rate, present value, or future value, calculate the third based on simple or compound interest. b. Given any one of the effective interest rate, the nominal interest rate convertible m-thly, the effective discount rate, the nominal discount rate convertible m-thly, or the force of interest, calculate all of the other items. Materials for Study, 2010 Exam 2 E2-2 c. Write the equation of value given a set of cash flows and an interest rate....
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- Spring '10