Exam FM/Exam 2 Financial Mathematics & Financial Economics

To the student: Please read this Introduction. It contains important information. This manual is a study guide for the Society of Actuaries' Exam FM and the Casualty Actuarial Society's Exam 2. Each topic is illustrated by examples and is followed by questions, with solutions, from past SOA and CAS exams dating from the early 1980s. The manual consists of 19 sections, followed by five original full-length practice exams. • Part I, Sections I to 9: Financial Mathematics These sections cover the required readings in the four reading options: Braverman, Ruckman & Francis, Daniel & Vaaler, and Kellison. • Part II, Sections 10 to I 9: Financial Economics These sections cover the required readings in McDonald's Derivatives Markets. • Part III: Five Original Practice Exams (35 questions each, 3 hours long) Following each section or subsection, there is a summary of the key concepts and formulas. Goals of this Manual • To explain the concepts of financial mathematics and financial economics in a way that appeals to your intuition and common sense. • To point out shortcuts and tricks that can get you to the answer more quickly. • To warn you about common traps that students fall into and help you to avoid them. • To provide you with hundreds of problems, with solutions, from past exams. • To also provide you with original practice exams made up by the authors. To highlight the concepts, tricks, shortcuts, and traps, you will see special symbols such as the following throughout the manual: CD Concept Alert! @shortcut Alert! @Trick Alert! ~'Trap Alert! Problems There is an old cliche in the real estate industry: What are the three most important factors in evaluating property? Answer: Location! Location! Location! If we had to say what the three most important factors are in studying for (and passing) this exam, they would be Problems! Problems! Problems! You must do a great variety of problems, preferably under time pressure, and especially as you get closer to the date of the examination. Most of the problems in this manual are taken from past SOA and CAS examinations. We want to thank the two actuarial societies for their kind permission to publish these questions.