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Thread: Practic Exam "FM" Problems - courtesy Actex Publications and Richard L. London, FSA

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    Arrow Practic Exam "FM" Problems - courtesy Actex Publications and Richard L. London, FSA

    Last edited by admin; September 24th 2005 at 08:43 PM.
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    For some reason question 8 for these sample questions is not showing up. Does anyone have this question available?

    Thanks
    Chris Stuart

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    Quote Originally Posted by cdogstu99
    For some reason question 8 for these sample questions is not showing up. Does anyone have this question available?
    Thank you for pointing this out. The link has been repaired and it appears to work now.
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    In the Actex FM Manual, page I-7, Observations 2, the solution in the book is (1+0.06/(3/2))^3/2t = 1.04^(1.5t)

    By the equation of the accumulation function with i^(m), I think the solution is a(t) = (1+((0.06)^(3/2))/(3/2))^(3/2t) = 1.009798^(1.5t)

    Am i right? or if i am wrong, can someone explain to me?? or do they have a web site which post all the typo correction of this book??
    Thank you!!

    I have one more question, How can i find the equivalent rates of interest and discount by using BA II Plus Professional??

    Thank you for all your help
    Tears stream down your face
    I promise you I will learn from my mistakes

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    Double T,

    I can't comment on your Actex question (as I don't have the Actex manual
    and so can't entirely follow it). I can comment on your BA II Plus Professional
    question.

    Your calculator doesn't have a specific function to convert from rate of
    interest to rate of discount (or vice-versa). You can of course use
    your calculator to evaluate i=d/(1-d) or d=i/(1+i).

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    Rephrasing example questions

    They need to rephrase some of these sample questions. It is sometimes left out or assumed that you know it is a continual payment or a once only payment on some financial questions, but if you are looking at it the first time you could know how to do the problem but be lead in the wrong direction because of sketchy wording of the problem

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    Here is a link to the errata for the ACTEX FM/2 Study Manual.

    http://www.actexmadriver.com/client/..._FM_Fall07.pdf

    If you have any further questions don't hesitate to give customer service a call 800-282-2839.

    Christine Phelps
    ACTEX Publications
    www.actexmadriver.com

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    Concern about problem #1!

    the interest only cumulate at the end of each year for money Y, so at year 1.5, it can only get the interest for year one.That is, AV1.5=(1+i) rather than (1+i)^1.5? Am I right?
    I think this is an important point need to be clarified clearly, Any suggestions?

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    Reply from Matt Hassett

    There is some confusion over Sample exam question 1 on page M1-29 of the ACTEX FM study guide. In solving the equation we assumed that Bruce gets one quarter’s worth of interest for the 29th quarter of his 7.25 years of investment. This gives an equation for δ:

    100×1.0214.5=100e7.25δ

    The solution is δ = .0396. This matches the official SOA solution, so the writers clearly intended that this assumption be made.

    If you assume that “convertible semiannually” means that interest is only paid semiannually, then you could assume that Bruce forfeits the interest on his final quarter. (This is what actually happens if you cash out a CD early. You forfeit some interest.) Then the equation for δ becomes:

    100×1.0214=100e7.25δ

    The solution then changes to .0382, but this is not one of the multiple choices –so you can rule out this assumption.

    The old official text by Kellison discusses the meanings of “compounded”, “payable” and “convertible” on page 17. After discussing the first two terms, Kellison says “The term ‘convertible’ does not seem to possess either connotation. The reader is advised not to rely on such connotations when encountering these terms, but to ascertain exactly how the interest is computed and paid.” In other words, convertible is ambiguous and you need to clarify how it is used in each situation. In my work in finance, there were legal document to review to clarify the intent. In the exam world the clarification is simpler –does your assumption match a multiple choice answer.



    Matt Hassett PhD,ASA

    Ph 480 756-4351

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