Exam FM—
August
2010
Financial Mathematics
Exam FM is a threehour, multiplechoice examination that is administered by Preliminary Actuarial
Examinations/SOA and is identical to CAS Exam 2. 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 FM is administered as a computerbased 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 noarbitrage as it relates to financial mathematics.
Exam FM 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
Updates
section on the FM page of the SOA Web Site for any changes to the exam or
syllabus.
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 mthly
j.
Nominal rate
k. Effective rate
l.
Force of interest
m. Equation of value
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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 mthly,
the effective discount rate, the nominal discount rate convertible mthly, or the force of
interest, calculate all of the other items.
c.
Write the equation of value given a set of cash flows and an interest rate.
B.
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 Spring '10
 kellison
 Time Value Of Money, following terms

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