IntroductionPage Intro - 1© ACTEX LearningExam FM – Financial MathematicsDinius, Hassett, Ratliff, Garcia, & SteebyAs you begin your preparation for the Society of Actuaries’ Exam FM, youshould be aware that studying Financial Mathematics (or “interest theory,” as Iprefer to call it) is not a matter of learning mathematics. Instead, financialmathematics involvesapplyingmathematics to situations that involve financialtransactions. This will require you to learn a new language, the language of thefinancial world, and then to apply yourexistingmath skills to solve problemsthat are presented in this new language. It is important that you spend adequatetime to fully understand the meanings of all the terms that will be introduced inthis manual. Nearly all of the problems on Exam FM will be word problems(rather than just formulas), and it is very difficult to solve these problemsunless you understand the language that is being used.In this manual, we assume that you have a solid working knowledge ofdifferential and integral calculus and some familiarity with probability. We alsoassume that you have an excellent knowledge of algebraic methods. Dependingon what mathematics courses you have taken (and how recently), you may needto review these topics in order to understand some of the material and work theproblems in this manual.Throughout this manual, a large number of the examples and practice problemsare solved using the Texas Instruments BA II Plus calculator, which is thefinancial calculator approved for use on Exam FM. It is essential for you tohave a BA II Plus calculator in order to understand the solutions presentedhere, and also to solve the problems on the actual exam. This calculator isavailable in a standard model, and also as the “BA II PlusProfessional.” TheProfessional model, which is somewhat more expensive than the standardmodel, is a bit easier to work with, which could be important when taking atimed exam.At the end of Volume II is an appendix with information about the BA II Plus.This appendix is included to help you learn the calculator’s functions and adjustits settings so that you will be able to solve problems more quickly. Veryimportantly, the appendix explains that your calculator will be “reset” by theexam staff when you check in to take Exam FM, and provides instructions forreturning the calculator to the settings you prefer. Reading this material willhelp you avoid having calculator difficulties on the day of your exam.IInnttrroodduuccttiioonn