Weekly Practice Exam "FM" Problems courtesy of Dr Krzysztof Ostaszewski

[krzysio]

I have posted some practice problems for exam FM for your enjoyment:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise1.pdf
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise2.pdf
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise3.pdf
Yours,
Krzys' Ostaszewski

[krzysio]

http://www.math.ilstu.edu/krzysio/KO-FM-Exercise4.pdf

Yours,
Krzys' Ostaszewski

[krzysio]

http://www.math.ilstu.edu/krzysio/KO-FM-Exercise5.pdf

I hope you will enjoy it.
Yours,
Krzys' Ostaszewski

[krzysio]

http://www.math.ilstu.edu/krzysio/KO-FM-Exercise6.pdf

I hope you will enjoy it.
Yours,
Krzys' Ostaszewski

[krzysio]

http://www.math.ilstu.edu/krzysio/KO-FM-Exercise7.pdf

I hope you will enjoy it.
Yours,
Krzys' Ostaszewski

[krzysio]

http://www.math.ilstu.edu/krzysio/KO-FM-Exercise8.pdf

I hope you will enjoy it.
Yours,
Krzys' Ostaszewski

[krzysio]

It is posted at
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise9.pdf
I hope you will enjoy it.

Yours,
Krzys'

[krzysio]

It is posted at
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise10.pdf
I hope you will enjoy it.

Yours,
Krzys'

[krzysio]

I have posted another practice exercise for exam FM:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise11.pdf
I hope you will enjoy.

Yours,
Krzys' Ostaszewski

[krzysio]

Please find it at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise12.pdf
I hope you enjoy it.

Yours,
Krzys'

[krzysio]

Please find it at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise13.pdf
I hope you enjoy it.

Yours,
Krzys'

[krzysio]

Please find it at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise13.pdf
I hope you enjoy it.

Yours,
Krzys'

[krzysio]

Please find it at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise14.pdf
I hope you enjoy it.

Yours,
Krzys'

[krzysio]

Please find it at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise15.pdf
I hope you enjoy it.

Yours,
Krzys'

[tejelly]

Please find it at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise12.pdf
I hope you enjoy it.

Yours,
Krzys'

Hello,

I just need some clarification on this question. Why does your solution include a 2% prepayment penalty? In the question it does not state a 1%/yr penalty.

Thanks,
Tejal

[krzysio]

The problem should say: 2% prepayment penalty, my mistake. But the problem does not say that prepayment penalty is per year, it is a one-time prepayment penalty. I will correct this. Thank you for pointing this out.

Yours,
Krzys'


Hello,

I just need some clarification on this question. Why does your solution include a 2% prepayment penalty? In the question it does not state a 1%/yr penalty.

Thanks,
Tejal

[krzysio]

Please find it at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise16.pdf
I hope you enjoy it.

Yours,
Krzys'

[krzysio]

Please find it at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise17.pdf
I hope you enjoy it.

Yours,
Krzys'

[krzysio]

Please find it at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise18.pdf
I hope you enjoy it.

Yours,
Krzys'

[krzysio]

Please find it at
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise19.pdf
Yours,
Krzys'

[krzysio]

Please find it at
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise20.pdf
Yours,
Krzys'

[krzysio]

Please find it at:
www.math.ilstu.edu/krzysio/KO-FM-Exercise21.pdf
I hope you will enjoy it.

Yours,
Krzys'

[krzysio]

Please find it at:
www.math.ilstu.edu/krzysio/KO-FM-Exercise22.pdf
I hope you will enjoy it.

Yours,
Krzys'

[krzysio]

This exercise is not a multiple choice exam-like problem, but instead a slightly longer problem discussing the range of possible yields on a callable bond:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise23.pdf
I hope you will enjoy it.
Yours,
Krzys' Ostaszewski

[krzysio]

I am going to speed up postings just before the exam, so that you can get some extra material.
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise24.pdf
I hope you will enjoy it.
Yours,
Krzys' Ostaszewski

[krzysio]

http://www.math.ilstu.edu/krzysio/KO-FM-Exercise25.pdf
I hope you will enjoy it.
Yours,
Krzys' Ostaszewski

[Arnold Kim]

http://www.math.ilstu.edu/krzysio/KO-FM-Exercise25.pdf
I hope you will enjoy it.
Yours,
Krzys' Ostaszewski

Question about this one:

In the solution it said that the present value of the 2 year bond is

$95,238.1/1.044 + $1,904,761.9/1.044^2

Shouldn't the last figure there be

$2,000,000/1.044^2? Why does it seem to not include the second coupon payment?

[krzysio]

Question about this one:

In the solution it said that the present value of the 2 year bond is

$95,238.1/1.044 + $1,904,761.9/1.044^2

Shouldn't the last figure there be

$2,000,000/1.044^2? Why does it seem to not include the second coupon payment?

Dear Arnold Kim:
Gosh, you must be ready for this test! Yes, you are right. I posted a corrected version now. Thanks for noticing this.
Yours,
Krzys'

[bv12]

Question regarding Sample Exercise 11:

Did I make an incorrect assumption of some sort here?
5(X)^n = 8 where X = 1+i
X^n = 8/5

Substitute that into the equation for the accumulated value:
(X^n - 1)/d = 8

and you have:

(8/5 - 1)/d = 8 ---> d=.075

[krzysio]

Nope. You did a great job, you find a quick and effective solution. Congratulations and thank you for pointing it out. Great work.

Yours,
Krzys' Ostaszewski
author of the Course FM manual at NEAS-seminars.com


Question regarding Sample Exercise 11:

Did I make an incorrect assumption of some sort here?
5(X)^n = 8 where X = 1+i
X^n = 8/5

Substitute that into the equation for the accumulated value:
(X^n - 1)/d = 8

and you have:

(8/5 - 1)/d = 8 ---> d=.075

[krzysio]

You can find it at
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise26.pdf
I hope you will enjoy it.

Yours,
Krzys' Ostaszewski
author of the NEAS Manual for exam FM
available at www.neas-seminars.com

[krzysio]

You can find it at
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise27.pdf
I hope you will enjoy it.

Yours,
Krzys' Ostaszewski
author of the NEAS Manual for exam FM
available at www.neas-seminars.com

[krzysio]

You can find it at
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise28.pdf
I hope you will enjoy it.

Yours,
Krzys' Ostaszewski
author of the NEAS Manual for exam FM
available at www.neas-seminars.com

P.S. Our next exam FM seminar at Illinois State University will be
April 1 and April 2 (intensive two-day seminar with a practice exam at the end).

[gilly76]

Dr. Ostaszewski,
May you be blessed for the weekly problems that you regularly post on the site. I will recommend your manuals to those who would like to have manuals for study.

[krzysio]

Dr. Ostaszewski,
May you be blessed for the weekly problems that you regularly post on the site. I will recommend your manuals to those who would like to have manuals for study.

Thank you kindly, as Benton Fraser used to say. I am very grateful for your nice words.

Yours,
Krzys'

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise29.pdf
I hope you will enjoy it. And Merry Christmas, and Happy New Year, and happy holidays to everyone.

Yours,
Krzys'

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise30.pdf
I hope you will enjoy it. And Merry Christmas, and Happy New Year, and happy holidays to everyone.

Yours,
Krzys'
author of the study manual for Course FM
available from www.neas-seminars.com

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise31.pdf
I hope you will enjoy it. Merry Christmas, Happy New Year, and happy holidays to everyone.

Yours,
Krzys'
author of the study manual for Course FM
available from www.neas-seminars.com

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise32.pdf
I hope you will enjoy it. Merry Christmas, Happy New Year, and happy holidays to everyone.

Yours,
Krzys'
author of the study manual for Course FM
available from www.neas-seminars.com

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise33.pdf
I hope you will enjoy it. Happy New Year!

Yours,
Krzys' Ostaszewski
author of the exam FM manual sold at www.neas-seminars.com

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise34.pdf
I hope you will enjoy it. Happy New Year!

Yours,
Krzys' Ostaszewski
author of the exam FM manual sold at www.neas-seminars.com

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise35.pdf

Yours,
Krzys' Ostaszewski
author of the exam FM manual sold at www.neas-seminars.com/registration/

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise36.pdf

Yours,
Krzys' Ostaszewski
author of the exam FM manual sold at www.neas-seminars.com/registration/

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise37.pdf

Yours,
Krzys' Ostaszewski

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise38.pdf

Yours,
Krzys' Ostaszewski

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise39.pdf

Yours,
Krzys' Ostaszewski

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise40.pdf

Yours,
Krzys' Ostaszewski

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise41.pdf

Yours,
Krzys' Ostaszewski

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise42.pdf

Yours,
Krzys' Ostaszewski

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise43.pdf

Yours,
Krzys' Ostaszewski

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise44.pdf

Yours,
Krzys' Ostaszewski

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise45.pdf

Yours,
Krzys' Ostaszewski

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise46.pdf

Yours,
Krzys' Ostaszewski

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise47.pdf

Yours,
Krzys' Ostaszewski

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise48.pdf

Yours,
Krzys' Ostaszewski

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise49.pdf

Yours,
Krzys' Ostaszewski

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise50.pdf

Yours,
Krzys' Ostaszewski

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise51.pdf

Yours,
Krzys' Ostaszewski

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise52.pdf

Yours,
Krzys' Ostaszewski

[nerdjyack]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise35.pdf

Yours,
Krzys' Ostaszewski
author of the exam FM manual sold at www.neas-seminars.com/registration/

Correct me if I'm wrong but shouldn't the question be "Thereafter, the project is expected to generate annual payments of $2
billion in a continuous perpetuity, with the first payment being made at the END of the 6th
year." (orig question states at the START of the 6th yr)

[krzysio]

Correct me if I'm wrong but shouldn't the question be "Thereafter, the project is expected to generate annual payments of $2
billion in a continuous perpetuity, with the first payment being made at the END of the 6th
year." (orig question states at the START of the 6th yr)

You are right, this is a typo in this problem, and it should also say not say "continuous perpetuity", but perpetuity immediate. I will put a corrected version out in a moment. Thank you for noting this, I appreciate your dilligence. Because this problem is also in my Course FM manual, Practice Examination No. 10, I have also posted errata for the current edition of that manual at:
http://www.math.ilstu.edu/krzysio/FMManual-Jun2006-Errata.pdf
Good luck in your studies, and on the upcoming exam.

Yours,
Krzys'

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise53.pdf

Yours,
Krzys' Ostaszewski

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise54.pdf

Yours,
Krzys' Ostaszewski

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise55.pdf

Yours,
Krzys' Ostaszewski

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise56.pdf

Yours,
Krzys' Ostaszewski

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise57.pdf

Yours,
Krzys' Ostaszewski

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise58.pdf

Yours,
Krzys' Ostaszewski

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise59.pdf

Yours,
Krzys' Ostaszewski

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise60.pdf

Yours,
Krzys' Ostaszewski

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise61.pdf

Yours,
Krzys' Ostaszewski

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise62.pdf

Yours,
Krzys' Ostaszewski

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise63.pdf

Yours,
Krzys' Ostaszewski

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise64.pdf

Yours,
Krzys' Ostaszewski

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise65.pdf

Yours,
Krzys' Ostaszewski

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise66.pdf

Yours,
Krzys' Ostaszewski

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise67.pdf

Yours,
Krzys' Ostaszewski

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise68.pdf

Yours,
Krzys' Ostaszewski

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise69.pdf

Yours,
Krzys' Ostaszewski

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise70.pdf

Yours,
Krzys' Ostaszewski

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise71.pdf

Yours,
Krzys' Ostaszewski

P.S. Illinois State University (ISU) exam FM review seminar starts in exactly two weeks. It is a two day seminar, held on campus of ISU. More information at: www.math.ilstu.edu/actuary/prepcourses.html.

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise72.pdf

Yours,
Krzys' Ostaszewski

P.S. Illinois State University (ISU) exam FM review seminar starts in exactly one week. It is a two day seminar, held on campus of ISU. More information at: www.math.ilstu.edu/actuary/prepcourses.html.

[Troy_Harkin]

Is there any place on the internet where problems and solutions are in HTML format? For the next few days, I won't have a computer with Acrobat on it, and need more problems for practice for FM. Can you help Krzys'?

- Troy

[krzysio]

Is there any place on the internet where problems and solutions are in HTML format? For the next few days, I won't have a computer with Acrobat on it, and need more problems for practice for FM. Can you help Krzys'?
- Troy

Sorry ... It is very easy for me now to produce pdf or paper, but html would require investment of time I do not have right now. I would like to switch to web-based actuarial education, I agree that this is the future, but I would have to either devote myself to learning how to create html math symbols, or hire someone to do this. Both options are extremely expensive. Sorry. It is expensive enough to write these weekly practice problems ... I know that these weekly problems and learning web-based stuff are investments, but I just can't afford making both investments now.

Yours,
Krzys'

[krzysio]

Is there any place on the internet where problems and solutions are in HTML format? For the next few days, I won't have a computer with Acrobat on it, and need more problems for practice for FM. Can you help Krzys'?

- Troy

But then again, your browser should open a PDF document, anyway,
so why is this a problem?

Yours,
Krzys'

[Troy_Harkin]

But then again, your browser should open a PDF document, anyway,
so why is this a problem?

Yours,
Krzys'

I am at a local library (get best studying done in libraries) and they do not have Acrobat installed on the computers here for some strange reason. I brought my dongle with me this time so I can put the files on it and bring em home.

- Troy

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise73.pdf

Yours,
Krzys' Ostaszewski

[krzysio]

I needed to make corrections in Exercises 57, 60 and 63:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise57.pdf
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise60.pdf
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise63.pdf

Yours,
Krzys' Ostaszewski

[Troy_Harkin]

On practice problem 62, all I did to compute the answer was

(1 + i/12)^12 = 1.12

and calculated i to be 11.38%.

That won't happen all the time, will it?

- Troy

[krzysio]

On practice problem 62, all I did to compute the answer was

(1 + i/12)^12 = 1.12

and calculated i to be 11.38%.

That won't happen all the time, will it?

- Troy

11.3865515214997%, to be persnickety. Not the same number as
the answer in the problem. But I should change the numbers in the
problem somewhat to avoid this. I will look at this. Thanks for pointing this out.

Yours,
Krzys'

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise74.pdf

Yours,
Krzys' Ostaszewski

[krzysio]

On practice problem 62, all I did to compute the answer was

(1 + i/12)^12 = 1.12

and calculated i to be 11.38%.

That won't happen all the time, will it?

- Troy

I looked over this again. The reason why you are getting an answer so close to the effective rate implied by APR as the right answer is because the additional fees included in calculation are very small in relation to the loan amount. But ... you are still almost 0.01% off, and if I made the five multiple choice answers differ by 0.01% only, you would get the wrong one.

But ... I can't change the problem, because this is an old exam problem.

Yours,
Krzys'

[bcgraham]

In Exercise 72, I got up to the monthly rate of return of 5.9643%; then I did

(1.059643)^12 = 2.004076

2.004076-1 = 1.004076; so my annualized was 100.4076%. Was this a typo on your part, or am I missing a step?

[krzysio]

In Exercise 72, I got up to the monthly rate of return of 5.9643%; then I did

(1.059643)^12 = 2.004076

2.004076-1 = 1.004076; so my annualized was 100.4076%. Was this a typo on your part, or am I missing a step?

I annualized 5.96%, you annualized 5.9643%, same answer choice, isn't it?
But if you want to be persnickety about it (and a good actuary is always persnickety, of course), I put a new version with calculation done in Excel, so it is as persnickety as it can get.

Yours,
Krzys'

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise75.pdf

Yours,
Krzys' Ostaszewski

[bcgraham]

I annualized 5.96%, you annualized 5.9643%, same answer choice, isn't it?
But if you want to be persnickety about it (and a good actuary is always persnickety, of course), I put a new version with calculation done in Excel, so it is as persnickety as it can get.

Yours,
Krzys'

In the original version, I remember seeing 1.004976 was written, instead of 1.004076. I thought my 100.41% was different than what was posted, which would have rounded to 100.5%. In any case, it's not there now; maybe I had misread it the whole time. Didn't intend to be persnickety for no reason!

[krzysio]

In the original version, I remember seeing 1.004976 was written, instead of 1.004076. I thought my 100.41% was different than what was posted, which would have rounded to 100.5%. In any case, it's not there now; maybe I had misread it the whole time. Didn't intend to be persnickety for no reason!

I changed the solution, I calculated it using the most digits I could get in Excel. In any case, persnickety is good on the actuarial exams, you have a much easier time passing them if you are persnickety. Thanks for your correction.

Yours,
Krzys'

[krzysio]

In the original version, I remember seeing 1.004976 was written, instead of 1.004076. I thought my 100.41% was different than what was posted, which would have rounded to 100.5%. In any case, it's not there now; maybe I had misread it the whole time. Didn't intend to be persnickety for no reason!

Hey, persnickety is good, an actuary is supposed to be persnickety.
Yours,
Krzys'

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise76.pdf

Yours,
Krzys' Ostaszewski

[truth in lending]

Sir:

I am practicing every exercise posted here so that I can be "used to" difficult questions. As I go along the exercises, I am not sure if there are exercises which are not found in Kellison's book, but still, I tried them.

I would like to ask questions regarding the problems:

1. http://www.math.ilstu.edu/krzysio/KO-FM-Exercise36.pdf
A part of the question states "Its coupon rate is equal to the current market yield on this bond less 1%". Based on the solution, the coupon rate was defined as i - 0.01. Would it be better if the statement is stated as "Its coupon rate is equal to 1% less the current market yield on this bond."? (It's like interpreting 17-3 = 14 as 3 less 17 is 14)

2. http://www.math.ilstu.edu/krzysio/KO-FM-Exercise22.pdf
I would like to know why, in the solution, particularly in the portion where the price is computed at the fourth coupon payment, the term of the annuity is 6 and not 4.

3. http://www.math.ilstu.edu/krzysio/KO-FM-Exercise3.pdf
What is the difference between the regular convexity and the Macaulay convexity? I got stucked at this concept because I did not encounter this in Kellison's book. I only know the convexity as P''(i) / P(i).

Hope for your kind consideration.

[krzysio]

Sir:
As I go along the exercises, I am not sure if there are exercises which are not found in Kellison's book, but still, I tried them.


Exercises in Kellison are good for you, but they are definitely not like
the real exam.



1. http://www.math.ilstu.edu/krzysio/KO-FM-Exercise36.pdf
A part of the question states "Its coupon rate is equal to the current market yield on this bond less 1%".

That would make people think that the coupon rate is 0.99 times the market rate, too confusing.



2. http://www.math.ilstu.edu/krzysio/KO-FM-Exercise22.pdf
I would like to know why, in the solution, particularly in the portion where the price is computed at the fourth coupon payment, the term of the annuity is 6 and not 4.

There are six half year periods in three years, not four.



3. http://www.math.ilstu.edu/krzysio/KO-FM-Exercise3.pdf
What is the difference between the regular convexity and the Macaulay convexity? I got stucked at this concept because I did not encounter this in Kellison's book. I only know the convexity as P''(i) / P(i).


Macaulay convexity is defined with respect to the force of interest.
Yours,
Krzys'

[truth in lending]

Thank you very much for your time. :D

[Troy_Harkin]

Dr. Krzys'

I have now passed all of your practice exams. Does that mean I am ready?

- Troy

[krzysio]

Dr. Krzys'

I have now passed all of your practice exams. Does that mean I am ready?

- Troy

I would be extremely surprised if you are not. When you say "passed", do you mean 70% of better? That is a very strong signal that you are ready. Of course, I am paranoid, so I would encourage you to study more, for example, download the practice problems Sam Broverman posted in this forum and do all of them. Not much time left, but you can also still practice memorization of formulas. All the best, and I will keep my fingers crossed for your success.
Yours,
Krzys'

[Troy_Harkin]

I would be extremely surprised if you are not. When you say "passed", do you mean 70% of better? That is a very strong signal that you are ready. Of course, I am paranoid, so I would encourage you to study more, for example, download the practice problems Sam Broverman posted in this forum and do all of them. Not much time left, but you can also still practice memorization of formulas. All the best, and I will keep my fingers crossed for your success.
Yours,
Krzys'

I have gotten anywhere between 18 (72%) and 21 (84%) on the exams. I am working on memorizing formulas, making sure I have them in place.

Do you know where I can find a problem using Makeham's Formula, or the Bond Salesman formula?

- Troy

[krzysio]

I have gotten anywhere between 18 (72%) and 21 (84%) on the exams. I am working on memorizing formulas, making sure I have them in place.

Do you know where I can find a problem using Makeham's Formula, or the Bond Salesman formula?

- Troy

Exercise 60 of the ones I posted is on Makeham. Bond Salesman, oh boy, I need to write something. But you really need to just memorize these formulas.

Yours,
Krzys'

[daanglen]

Dear Dr. Krzys',

The question #24 in the practice exam 10 is asking "Find the current price of a three-year zero coupon bond with a $1000 maturity value.". However all the choices are given in %. i.e. A. 3.81% B.3.90%......

In the solution, you are finding the 3 year spot-rate.

[krzysio]

Dear Dr. Krzys',

The question #24 in the practice exam 10 is asking "Find the current price of a three-year zero coupon bond with a $1000 maturity value.". However all the choices are given in %. i.e. A. 3.81% B.3.90%......

In the solution, you are finding the 3 year spot-rate.

You are absolutely right. It should have asked for the yield, not the price.
Sorry for this error.

Yours,
Krzys'

[krzysio]

It is posted at
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise77.pdf
Yours,
Krzys'

P.S. New edition of my FM manual is now available. Next week I will start posting exercises for the new investments material on exam FM.

[krzysio]

It is posted at
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise78.pdf
Yours,
Krzys'

P.S. I promised new material, but since people asked me questions on convexity, I decided to write this one. This is still on the test in May 2007. Derivatives stuff (options, forwards, futures, swaps, etc.) is coming, next week, and since I am posting this early, this may help those of you who are studying for Wednesday, November 8, 2006, exam FM.

P.P.S. And November 11 is my grandmother's birthday, so it is a very special day. I better call her now.

[krzysio]

I am posting exercise for April 14. 2007 early, to help those studying for
November 2006 exam:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise99.pdf
Yours,
Krzys'

[daanglen]

on the exam, when they ask us to find convexity, they will specify either macaulay convexity or modified convexity, right? Thank you!

[daanglen]

I am posting exercise for April 14. 2007 early, to help those studying for
November 2006 exam:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise99.pdf
Yours,
Krzys'

Dear Krzys'

In this practice exercise, "a bond that pays a 6% semiannual coupon", is this different from saying "6% coupon payable semiannually"? I tried to solve this problem with coupon rate equal to 3%, and coupon payments are 30. I didn't get the right answer. Thank you!

[krzysio]

Dear Krzys'

In this practice exercise, "a bond that pays a 6% semiannual coupon", is this different from saying "6% coupon payable semiannually"? I tried to solve this problem with coupon rate equal to 3%, and coupon payments are 30. I didn't get the right answer. Thank you!

OK, I will state it more clearly in the problem: semiannual coupon of 6% payable semiannually. I will repost the exercise in just a moment.

Yours,
Krzys'

[krzysio]

on the exam, when they ask us to find convexity, they will specify either macaulay convexity or modified convexity, right? Thank you!

The trouble is, exam readings are somewhat unclear. I would assume convexity is convexity, unless some explanation is added. This means that the convexity of an n-year zero coupon bond is n times n+1 divided by (1+i)^2.

Yours,
Krzys'

[daanglen]

OK, I will state it more clearly in the problem: semiannual coupon of 6% payable semiannually. I will repost the exercise in just a moment.

Yours,
Krzys'

Thank you for your time!

[bibisea]

I think that Makeham and Bond Salesman is not in the syllabus of SOA. Furthermore, it is excluded from the textbook referrence in the study notes of SOA.


Exercise 60 of the ones I posted is on Makeham. Bond Salesman, oh boy, I need to write something. But you really need to just memorize these formulas.

Yours,
Krzys'

[atabd]

I am posting exercise for April 14. 2007 early, to help those studying for
November 2006 exam:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise99.pdf
Yours,
Krzys'

Hi,
I wanted to ask you how could we avoid this kind of time consuming calculations for such a problems in the exam?

Thanks.

[krzysio]

I think that Makeham and Bond Salesman is not in the syllabus of SOA. Furthermore, it is excluded from the textbook referrence in the study notes of SOA.

What is the source of this rather astonishing statement? A basic formula for the price of a bond is not on the test? A common approximation of the current yield of a bond is not on the test? I could possibly see how you could argue that only the exact yield calculation is on the test, but only argue. When you say "excluded from the textbook reference", what is excluded and from what? Broverman's book? Bond Salesman formula is in Broverman's book on page 258, and Makeham's formula is on pages 193, 229, 248. This is why I am saying you could argue that Bond Salesman formula is only in an exercise, so you may not have to know it. But I would caution against excessive audacity is dealing with uncertainty of what is on the test. Nobody said actuarial exams are reasonable.

Could you please explain?

Yours,
Krzys'

[krzysio]

Hi,
I wanted to ask you how could we avoid this kind of time consuming calculations for such a problems in the exam?

Thanks.

Present value of an increasing annuity is not excessive, and in fact you can rest assured it will be on the test. I reposted the exercise with a more detailed solution to show you what I mean. Take a closer look at it, I am very serious: this is a very, very likely exam question.

Good luck Wednesday.

Yours,
Krzys'

[atabd]

Present value of an increasing annuity is not excessive, and in fact you can rest assured it will be on the test. I reposted the exercise with a more detailed solution to show you what I mean. Take a closer look at it, I am very serious: this is a very, very likely exam question.

Good luck Wednesday.

Yours,
Krzys'

Hi,
Thank you very much.I am not going to use calculator to find these kind of duration when coupons are semiannul any more.

[Troy_Harkin]

Present value of an increasing annuity is not excessive, and in fact you can rest assured it will be on the test. I reposted the exercise with a more detailed solution to show you what I mean. Take a closer look at it, I am very serious: this is a very, very likely exam question.

Good luck Wednesday.

Yours,
Krzys'

Do you think that a modified duration question would have someone make 20 calculations, then dividing the sum by (1+i)^2? That's a little harsh, especially if you don't enter in the keystrokes correctly. But then again, these exams aren't meant to be fair.

In 2 days, the madness will be over.

- Troy

[Troy_Harkin]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise67.pdf

Yours,
Krzys' Ostaszewski

I am just going through practice problems again. Did over 40 Broverman ones, and don't like them as much (mostly because they aren't set up like real practice problems). I know that this practice problem was from Course 6, so the material is highly related, but the wording "OAS model" isn't in your text. Effective duration, modified duration, etc. are. When I first looked at this problem, I was confused by that phrase.

- Troy

[krzysio]

I am just going through practice problems again. Did over 40 Broverman ones, and don't like them as much (mostly because they aren't set up like real practice problems). I know that this practice problem was from Course 6, so the material is highly related, but the wording "OAS model" isn't in your text. Effective duration, modified duration, etc. are. When I first looked at this problem, I was confused by that phrase.

- Troy

Option-adjusted-spread model relates to option-adjusted duration and convexity. This is in my manual. Did the solution I posted make sense?

Yours,
Krzys'

[krzysio]

Do you think that a modified duration question would have someone make 20 calculations, then dividing the sum by (1+i)^2? That's a little harsh, especially if you don't enter in the keystrokes correctly. But then again, these exams aren't meant to be fair.

In 2 days, the madness will be over.

- Troy

Take a look at an updated solution of Exercise 99 I posted. You do this using properties of increasing annuities. And note that it is not divided by (1+i)^2, it is divided by (1 + i(2)/2)^2.

Yours,
Krzys'

[bibisea]

here is the source. it is pasted from http://www.soa.org/ccm/content/exams-education-jobs/candidate-and-exam-information/fall-exam-session/fall-2006/study-notes/Fall-2006-exam-fm-financial-mathematics/
Suggested Texts : option B.
Chapter 3 through section 3.3 (excluding pages 188–189),
Chapter 4 through section 4.3.1.

As you said "Makeham's formula is on pages 193, 229, 248",which is in section 3.4, section 4.1.1 and 4.3.2, respectively. Neither section 3.4 nor section 4.3.2 is included in the suggested textbook, while section 4.1.2 is mostly about the common bond price.

I do not want to argue with you. I wrote that sentence just because I learn this book exactly following the instruction of the suggested book option B and I did not learn about the two stuff you mentioned there.

I am sorry if that sentence makes you feel "astonished".


What is the source of this rather astonishing statement? A basic formula for the price of a bond is not on the test? A common approximation of the current yield of a bond is not on the test? I could possibly see how you could argue that only the exact yield calculation is on the test, but only argue. When you say "excluded from the textbook reference", what is excluded and from what? Broverman's book? Bond Salesman formula is in Broverman's book on page 258, and Makeham's formula is on pages 193, 229, 248. This is why I am saying you could argue that Bond Salesman formula is only in an exercise, so you may not have to know it. But I would caution against excessive audacity is dealing with uncertainty of what is on the test. Nobody said actuarial exams are reasonable.

Could you please explain?

Yours,
Krzys'

[krzysio]

here is the source. it is pasted from http://www.soa.org/ccm/content/exams-education-jobs/candidate-and-exam-information/fall-exam-session/fall-2006/study-notes/Fall-2006-exam-fm-financial-mathematics/
Suggested Texts : option B.
Chapter 3 through section 3.3 (excluding pages 188–189),
Chapter 4 through section 4.3.1.

As you said "Makeham's formula is on pages 193, 229, 248",which is in section 3.4, section 4.1.1 and 4.3.2, respectively. Neither section 3.4 nor section 4.3.2 is included in the suggested textbook, while section 4.1.2 is mostly about the common bond price.

I do not want to argue with you. I wrote that sentence just because I learn this book exactly following the instruction of the suggested book option B and I did not learn about the two stuff you mentioned there.

I am sorry if that sentence makes you feel "astonished".

No need to be sorry. Good point, I see what you mean. The syllabus does say: no 3.4 in Broverman, and 3.4 starts with Makeham. Same for APR for consumer loans in the U.S., that's also covered in a section specifically excluded. As I see it, this means there will be no questions in which Makeham is the most efficient way to go.

As I always say, I am paranoid, so I would learn Makeham anyway. But this makes it basically impossible that a straightforward Makeham question will be asked.

Thanks for pointing this out.

Yours,
Krzys'

[daanglen]

good luck, everyone!

[DMB3401]

Dear Krzys',

could you help me understand how to find the duration of an increasing perpetuity? for example, increasing perpetuity payments of 1, 2, 3, ..... (increasing by 1), the payments are paid at the end of each year forever. suppose we have i=10%, and find the macaulay duration.

the numerator= v+2*2*v^2+3*3*v^3+4*4*v^4.......
the denominator=v+2*v^2+3*v^3+.........

I know the denominator also= v/ (1-v)^2. I don't know what to with numerator? Thank you for your time!!

P.S. This is just a question that someone else has in the study group. I don't remember what the question exactly is.

I think you have to make a difference table for the numerator like so:



Time Payment Diff1 Diff2 Diff3
1 1
3
2 4 2
5 0
3 9 2
7
4 16


Then you take the first number in the payment row and divide it by i, then you take the first number in the diff1 row and divide it by i^2 and take the first number in the diff2 row and divide it by i^3. So the numerator will be:

1/(.1) + 3/(.1)^2 + 2/(.1)^3 = 2310

The only reason this works is because the payments are in a polynomial progression (in this case it is second degree polynomial progression). This is discussed in Kellison's book, but I don't think that it will be asked on the exam.

[daanglen]

I think you have to make a difference table for the numerator like so:



Time Payment Diff1 Diff2 Diff3
1 1
3
2 4 2
5 0
3 9 2
7
4 16


Then you take the first number in the payment row and divide it by i, then you take the first number in the diff1 row and divide it by i^2 and take the first number in the diff2 row and divide it by i^3. So the numerator will be:

1/(.1) + 3/(.1)^2 + 2/(.1)^3 = 2310

The only reason this works is because the payments are in a polynomial progression (in this case it is second degree polynomial progression). This is discussed in Kellison's book, but I don't think that it will be asked on the exam.

thank you! there is a easier way to solve this problem. Modified duration is the -derivative of the price with respect to i, and then divide by the price. Modified duration is equal to v times macaulay duration.

[krzysio]

thank you! there is a easier way to solve this problem. Modified duration is the -derivative of the price with respect to i, and then divide by the price. Modified duration is equal to v times macaulay duration.

I have written an exercise that shows this for a perpetuity due, using the derivative approach and the weighted time to maturity approach. Take a look at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise102.pdf
This will be an exercise for the last Saturday of April in 2007.

Yours,
Krzys'

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise79.pdf
Yours,
Krzys'

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise80.pdf
Yours,
Krzys'

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise81.pdf
Yours,
Krzys' Ostaszewski

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise82.pdf
Yours,
Krzys' Ostaszewski

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise83.pdf
Yours,
Krzys' Ostaszewski

[krzysio]

It is posted at
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise84.pdf
Yours,
Krzys'

P.S. Merry Christmas, everyone.

[krzysio]

It is posted at
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise85.pdf
Yours,
Krzys'

P. S. My apologies for any inconvenience, but I had to replace this exercise with a different one, on April 9, 2007, because the exercise previously posted went beyond what is covered on the test.

[krzysio]

It is posted at
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise86.pdf
Yours,
Krzys'

[daanglen]

I passed!!!!

Thank you, Krzys'! Thank you so much for your help!!!!!!

[krzysio]

I passed!!!!

Thank you, Krzys'! Thank you so much for your help!!!!!!

My most sincere congratulations.

The exercise for January 13, 2007 is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise87.pdf
Yours,
Krzys'

[krzysio]

The exercise for January 20, 2007 is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise88.pdf
Yours,
Krzys'

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise89.pdf
Yours,
Krzys'

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise90.pdf
Yours,
Krzys'

P.S. This exercise was modified April 9, 2007, it needed a correction.

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise91.pdf
Yours,
Krzys'

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise92.pdf
Yours,
Krzys'

[djerry81]

the link isnt working

[krzysio]

the link isnt working

Maybe the server was down, sorry. I checked and it is working now.
Yours,
Krzys'

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise93.pdf
Yours,
Krzys'

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise94.pdf
Yours,
Krzys'

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise95.pdf
Yours,
Krzys'

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise96.pdf
Yours,
Krzys'

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise97.pdf
Yours,
Krzys'

[pde]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise96.pdf
Yours,
Krzys'
Dr. Krzysio:
Should s_2 is the spot rate from time 0 to time 1?
Best,
pde

[krzysio]

Dr. Krzysio:
Should s_2 is the spot rate from time 0 to time 1?
Best,
pde

Indeed. Thank you very much for pointing out this typo. I will correct ASAP.
Yours,
Krzys'

[krzysio]

It is posted at:

http://www.math.ilstu.edu/krzysio/KO-FM-Exercise98.pdf

Yours,
Krzys'

[pde]

The exercise for January 20, 2007 is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise88.pdf
Yours,
Krzys'

Dr. Krzysio,
I do not see why you use 8.25% for the first equation in your solution. I think "6-month Libor from 3 months ago" is "3-month Libor from today", which is 8%.
Best,
An.

[krzysio]

Dr. Krzysio,
I do not see why you use 8.25% for the first equation in your solution. I think "6-month Libor from 3 months ago" is "3-month Libor from today", which is 8%.
Best,
An.

Under the terms of the swap, six-months LIBOR is used. The problem says that.

Yours,
Krzys'

[krzysio]

It is posted at:

http://www.math.ilstu.edu/krzysio/KO-FM-Exercise99.pdf

Yours,
Krzys'

[krzysio]

It is posted at:

http://www.math.ilstu.edu/krzysio/KO-FM-Exercise100.pdf

Yours,
Krzys'

P.S. 100 is a nice anniversary. But 104 will mean a two-year anniversary.

[krzysio]

It is posted at:

http://www.math.ilstu.edu/krzysio/KO-FM-Exercise101.pdf

Yours,
Krzys'

[krzysio]

It is posted at
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise102.pdf
Yours sincerely,
Krzys' Ostaszewski

[krzysio]

It is posted at
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise103.pdf
Yours sincerely,
Krzys' Ostaszewski

[krzysio]

It is posted at
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise104.pdf
Yours sincerely,
Krzys' Ostaszewski

[yfeng]

It is posted at
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise104.pdf
Yours sincerely,
Krzys' Ostaszewski

Dear Professor,

I am confused about this statement in your answer.

The value of the original forward position is
[F(0.5) - F(0)]e^(-0.03) = 3.99

if F(0.5) is the price at time 0.5, and F(0) is the price at time 0, then shouldn't we express the equation like this:
F(0.5)e^(-0.03) - F(0) = 3.99
or
F(0.5) - F(0)e^(0.03) = 3.99 depends on how we read "at this time"?

[krzysio]

Dear Professor,

I am confused about this statement in your answer.

The value of the original forward position is
[F(0.5) - F(0)]e^(-0.03) = 3.99

if F(0.5) is the price at time 0.5, and F(0) is the price at time 0, then shouldn't we express the equation like this:
F(0.5)e^(-0.03) - F(0) = 3.99
or
F(0.5) - F(0)e^(0.03) = 3.99 depends on how we read "at this time"?

What is the definition of the forward price?

F(0.5) is the price you buy at on the forward if forward is entered into costlessly at time 0.5, and F(0) is the price you buy at on the forward if forward is entered into costlessly at time 0. So if you pay F(0) instead of F(0.5), what is your benefit at expiration, and what is its present value at time 0.5?

With a simple numerical example: If you pay $600 for gold versus paying $700, what is your benefit? How did you calculate that benefit? If the benefit is realized half a year in the future, what is the value of it now?

Yours,
Krzys'

[yfeng]

Thanks for the explanation. Now I understand.


What is the definition of a forward? The statement I wrote follows directly from the definition, and what you wrote seems like just random manipulation of formulas. F(0.5) is the price you buy at on the forward if forward is entered into costlessly at time 0.5, and F(0) is the price you buy at on the forward if forward is entered into costlessly at time 0. So if you pay F(0) instead of F(0.5), what is your benefit at expiration, and what is its present value at time 0.5?

With a simpel numerical example: If you pay $600 for gold versus paying $700, what is your benefit? How did you calculate that benefit? If the benefit is realized half a year in the future, what is the value of it now?

Yours,
Krzys'

[krzysio]

It is posted at
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise105.pdf
Yours sincerely,
Krzys' Ostaszewski

[krzysio]

It is posted at
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise106.pdf
Yours sincerely,
Krzys' Ostaszewski

[krzysio]

It is posted at
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise107.pdf
Yours sincerely,
Krzys' Ostaszewski

[raymond_be2003]

Please find it at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise12.pdf
I hope you enjoy it.

Yours,
Krzys'
Mr good day Im raymond castillo of the phillipines. Im an actuarial graduate but unfortunate I dont have enough money for the examination. Can u give me a link for these problem...thanks

[krzysio]

Mr good day Im raymond castillo of the phillipines. Im an actuarial graduate but unfortunate I dont have enough money for the examination. Can u give me a link for these problem...thanks

Every posting with a weekly exercise contains a link to the exercise. Your own e-mail contained a quote from my posting with a link. Therefore, I wonder what you are asking.
Yours,
Krzys'

[krzysio]

It is posted at
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise108.pdf
Yours sincerely,
Krzys' Ostaszewski

[krzysio]

It is posted at
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise109.pdf
Yours sincerely,
Krzys' Ostaszewski

[krzysio]

It is posted at
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise110.pdf
Yours sincerely,
Krzys' Ostaszewski

[krzysio]

It is posted at
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise111.pdf
Yours sincerely,
Krzys' Ostaszewski

[krzysio]

It is posted at
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise112.pdf
Yours sincerely,
Krzys' Ostaszewski

[krzysio]

It is posted at:

http://www.math.ilstu.edu/krzysio/KO-FM-Exercise113.pdf

Yours,
Krzys'

[krzysio]

It is posted at:

http://www.math.ilstu.edu/krzysio/KO-FM-Exercise114.pdf

Yours,
Krzys'

[krzysio]

It is posted at:

http://www.math.ilstu.edu/krzysio/KO-FM-Exercise115.pdf

Yours,
Krzys'

[krzysio]

It is posted at:

http://www.math.ilstu.edu/krzysio/KO-FM-Exercise116.pdf

Yours,
Krzys'

[krzysio]

It is posted at:

http://www.math.ilstu.edu/krzysio/KO-FM-Exercise117.pdf

Yours,
Krzys'

[krzysio]

It is posted at:

http://www.math.ilstu.edu/krzysio/KO-FM-Exercise118.pdf

Yours,
Krzys'

[krzysio]

It is posted at:

http://www.math.ilstu.edu/krzysio/KO-FM-Exercise119.pdf

The solutions to the study note on derivatives posted by the SOA were really sketchy, so I will be posting more detailed solutions now. It's only 9 problems, but some of them are nice.

Yours,
Krzys'

[krzysio]

It is posted at:

http://www.math.ilstu.edu/krzysio/KO-FM-Exercise120.pdf

Yours,
Krzys'

[krzysio]

It is posted at:

http://www.math.ilstu.edu/krzysio/KO-FM-Exercise121.pdf

Yours,
Krzys'

[raymond_be2003]

I would like to have my exam fm in the philippines but unfortunately, I have'nt my money in this exam do we have scholarship for this Mr.?:rolleye:

[krzysio]

I would like to have my exam fm in the philippines but unfortunately, I have'nt my money in this exam do we have scholarship for this Mr.?:rolleye:

The Society of Actuaries has a program of discounts for the candidates from developing economies. Philippines is one of the countries eligible for the program. Information is here:
http://www.soa.org/education/exams/exam-information/edu-examination-and-study-material-fee-discount-program.aspx
There is a pretty substantial actuarial program at the University of the Philippines at Los Banos, you might also want to contact them, they might be able to give you more guidance, and they definitely have a lot of knowledge about how things can be best done in the Philippines. To my best knowledge, the program there is directed by Professor Cris Dorado.
Yours,
Krzys'

[krzysio]

It is posted at:

http://www.math.ilstu.edu/krzysio/KO-FM-Exercise122.pdf

Yours,
Krzys'

[krzysio]

It is posted at:

http://www.math.ilstu.edu/krzysio/KO-FM-Exercise123.pdf

Yours,
Krzys'

[krzysio]

It is posted at:

http://www.math.ilstu.edu/krzysio/KO-FM-Exercise124.pdf

Yours,
Krzys'

[krzysio]

Illinois State University exam FM seminar will be held in one week, October 6-7, 2007, in the exciting town of Normal, Illinois. More information at:
http://www.math.ilstu.edu/actuary/prepcourses.html
To convince you that it would be a good idea to join us, let me post the exercises for the entire period until November 2007 exam FM:

Exercise for October 6, 2007
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise125.pdf

Exercise for October 13, 2007
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise126.pdf

Exercise for October 20, 2007
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise127.pdf

Exercise for October 27, 2007
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise128.pdf

Exercise for November 3, 2007
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise129.pdf

Yours,
Krzys'

[Forerunner]

It is posted at
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise110.pdf
Yours sincerely,
Krzys' Ostaszewski

Dr. O,

What is the current six-month short rate in the question?

Thanks,


Forerunner

[krzysio]

Dr. O,

What is the current six-month short rate in the question?

Thanks,


Forerunner

Are you asking what the spot rate from time 0 to time 0.5 (in years) is? It is not needed to solve the problem, as the solution shows.

Yours,
Krzys'

[Forerunner]

Are you asking what the spot rate from time 0 to time 0.5 (in years) is? It is not needed to solve the problem, as the solution shows.

Yours,
Krzys'

Thank you, Dr. O. I thought the problem asks for the current six-month short rate which I interpreted it as the spot rate from 0 to 0.5 year (s0.5). But your solution gives the one year spot rate, s1 = 7.12%.

Sincerely,

Forerunner

[enirehtac07]

It is posted at:

http://www.math.ilstu.edu/krzysio/KO-FM-Exercise121.pdf

Yours,
Krzys'

Dr. O,

It seems like the cost of producing 10,000 jalapenos (=1,000) isn't coming into play. Am I missing something?

-enirehtac

Nevermind! I didn't read all of the solutions!

[enirehtac07]

It is posted at
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise104.pdf
Yours sincerely,
Krzys' Ostaszewski

Can somebody help me with this problem? I don't understand the F(.5)-F(0) portion...

Thanks!

[krzysio]

Can somebody help me with this problem? I don't understand the F(.5)-F(0) portion...

Thanks!

The original forward position at time 0.5 is off market, so you need to ask yourself how much it is worth. What is the difference in value of buying at the price of F_0.5 and buying at the price of F_0?

To put it simply: what is the value of buying gold at $600 versus buying gold at $700? What if you are doing this buying half a year from now? Does this make sense?

Yours,
Krzys'

[enirehtac07]

The original forward position at time 0.5 is off market, so you need to ask yourself how much it is worth. What is the difference in value of buying at the price of F_0.5 and buying at the price of F_0?

To put it simply: what is the value of buying gold at $600 versus buying gold at $700? What if you are doing this buying half a year from now? Does this make sense?

Yours,
Krzys'


Thank you Dr O! Drawing it out on a timeline helped too.

[Mosaic]

Dr. Krzysio,

Some of my last preparations for my exam have me running through your problems, since they are often enticingly complex. It worked for Exam P. Your Exercise 69 does not specify that all of the interests that you have provided are compounded semi-annually, just the first one. I waded deep into square-roots of given interest rates only to have found that I went overboard.

[krzysio]

Dr. Krzysio,

Some of my last preparations for my exam have me running through your problems, since they are often enticingly complex. It worked for Exam P. Your Exercise 69 does not specify that all of the interests that you have provided are compounded semi-annually, just the first one. I waded deep into square-roots of given interest rates only to have found that I went overboard.

The question does clearly say that the second and the third bond's yield is nominal annual compounded semiannually. You just have not learned the bond terminology. This is covered in my manual. The question is straight from an old exam, and if you have trouble with it, you should go back and study. Good luck.

Yours,
Krzys'

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise130.pdf

Yours,
Krzys'

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise131.pdf

Yours,
Krzys'

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise132.pdf

Yours,
Krzys'

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise133.pdf

Yours,
Krzys'

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise134.pdf

Yours,
Krzys'

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise135.pdf

Yours,
Krzys'

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise136.pdf

Yours,
Krzys'

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise137.pdf

Yours,
Krzys'

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise138.pdf

Yours,
Krzys'

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise139.pdf

Yours,
Krzys'

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise140.pdf

Yours,
Krzys'

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise141.pdf

Yours,
Krzys'

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise142.pdf

Yours,
Krzys'

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise143.pdf

Yours,
Krzyś

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise144.pdf

Yours,
Krzyś

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise145.pdf

Yours,
Krzyś

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise146.pdf

Yours,
Krzyś

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise147.pdf

Yours,
Krzyś

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise148.pdf

Yours,
Krzyś

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise149.pdf

Yours,
Krzyś

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise150.pdf

Yours,
Krzyś

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise151.pdf

Yours,
Krzyś

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise152.pdf

Yours,
Krzyś

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise153.pdf

Yours,
Krzyś

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise154.pdf

Yours,
Krzyś

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise155.pdf

Yours,
Krzyś

P.S. May 3: Polish National Holiday, celebrating the second Constitution in the history of mankind.

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise156.pdf

Yours,
Krzyś

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise157.pdf

Yours,
Krzyś

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise158.pdf

Yours,
Krzyś

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise159.pdf

Yours,
Krzyś

[sue]

I resolved my question. I don't know how to delete this

[Charles.Lindberg]

Good news Dr. Ostaszewski,

I talked my professor into buying 5 of your FM manuals, to help students study! Well, more like she asked me what manual I would get and I said Ostaszewski's.

Anyway, thanks for all the good problems and what not.

[Amily]

Dr.Ostaszewski,
Are there any derivetive market questions in your poster? It is hard to find their out from so many exercise questions. Can you give us a link to derivetive questions? Thanks.

[krzysio]

Dr.Ostaszewski,
Are there any derivetive market questions in your poster? It is hard to find their out from so many exercise questions. Can you give us a link to derivetive questions? Thanks.

There is a simple solution to your problem: get my study manual. It has complete coverage of derivatives material and 12 practice exams, which contain many derivatives questions.

Yours,
Krzys'

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise160.pdf

Yours,
Krzyś

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise161.pdf

Yours,
Krzyś

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise162.pdf

Yours,
Krzyś

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise163.pdf

Yours,
Krzyś

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise164.pdf

Yours,
Krzyś

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise165.pdf

Yours,
Krzyś

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise166.pdf

Yours,
Krzyś

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise167.pdf

Yours,
Krzyś

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise168.pdf

Yours,
Krzyś

[AVIFISCH]

ALL YOUR STUFF COMES FROM SOA WHAT ARE YOU FOR:Exclamation:

[NoMoreExams]

ALL YOUR STUFF COMES FROM SOA WHAT ARE YOU FOR:Exclamation:

Not all his questions come from SOA and even the ones that do, he offers a step by step solution (which may differ from SOAs, not sure). OTOH if you don't like it, don't look at it. He's not charging anything for this.

[krzysio]

ALL YOUR STUFF COMES FROM SOA WHAT ARE YOU FOR:Exclamation:

SOA posted 66 practice problems for FM, and I posted 169. I am really worried about your arithmetics skills. You will need such skills on this exam.

These practice problems are free, but if you do not like them, I will be glad to give you all the money you paid for them back.

Yours,
Krzys'

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise169.pdf

Yours,
Krzyś

[mwilly10023]

Dr Krzysztof Ostaszewski :


Which pdf files(in terms of numbering) would have questions/problems pertaining to objectives 1 + 2 (interest,PV,AV etc.) ? Thanks.:confused-

mwilly10023

[krzysio]

Dr Krzysztof Ostaszewski :


Which pdf files(in terms of numbering) would have questions/problems pertaining to objectives 1 + 2 (interest,PV,AV etc.) ? Thanks.:confused-

mwilly10023

You will find exercises organized by topics and wonderful explanation of all topics in the Study Manual for Exam FM that I authored, and information about buying it is in the exercises.
Yours,
Krzys'

[krzysio]

It is posted at:
http://www.math.ilstu.edu/krzysio/KO-FM-Exercise170.pdf

Yours,
Krzyś