Exam FM: Financial Mathematics Study Guide
Time value of money, annuities, bonds, loans, interest rate theory, and financial derivatives.
Overview
Exam FM covers the mathematical foundations of financial economics that actuaries use daily. Topics include time value of money, annuities, bonds, loans, immunization, and introductory financial derivatives. Strong calculator skills and the ability to set up equations of value quickly are critical for success.
Exam Format
- Duration
- 180 minutes (3 hours)
- Questions
- 30 multiple-choice questions
- Pathway
- SOA and CAS
- Format
- Computer-based testing (CBT)
Topic Breakdown
Time Value of Money
10-15%Effective and nominal rates, force of interest, present and future values, equations of value
Annuities
15-20%Level annuities-immediate and annuities-due, deferred annuities, increasing and decreasing annuities, continuous annuities
Loans
15-20%Amortization schedules, sinking funds, outstanding balance by prospective and retrospective methods
Bonds
15-20%Bond pricing, premium and discount, callable bonds, term structure, spot and forward rates
Interest Rate Risk
10-15%Duration (Macaulay and modified), convexity, immunization, asset-liability matching
Financial Derivatives
15-20%Forwards, futures, options, put-call parity, binomial pricing, no-arbitrage arguments
Recommended Study Approach
- 1
Master the BA-II Plus calculator, including its time-value-of-money worksheet and amortization functions.
- 2
Build intuition for interest rate conversions between nominal, effective, discount, and force of interest.
- 3
Practice annuity problems until you can identify the type (due, immediate, deferred, varying) within seconds.
- 4
Study bond pricing by working through par, premium, and discount bond scenarios with varying coupon structures.
- 5
Learn loan amortization tables and the prospective and retrospective methods for finding outstanding balances.
- 6
For derivatives, focus on put-call parity, no-arbitrage pricing, and the binomial option pricing model.