Is FM easier than P?

[dmbfan41]

i really don't know yet (although i'm essentially done the material). it seems to me that the memorization for FM is a lot easier than for P.

[jthias]

Oh so you don't know how you can solve basically any polynomial with the CF worksheet?

Try this:

Say you are trying to solve 1-v-v^10=0

Go to the cash flow worksheet and put in the following:

C0=1
C1=-1
F1=1
C2=0
F2=9 (the time between cash flow one and cash flow 10)
C3=-1
F3=1

Hit IRR and then CPT. What you get is an answer for i. That was an easy one. Here is another example.

20(1+i/4)^28-10(1+i/4)^20-10(1+i/4)^16-5=0

We can either put the cash flows in directly or multiply through by v^28. Just put them in directly.

C0=20 (Cash flow at t=0 accumulates the longest.)
C1=0
F1=7 (28-(20+1), the time between cash flow 0 and 1)
C2=-10
F2=1
C3=0
F3=3
C4=-10
F4=1
C5=0
F5=15
C6=-5
F6=1

IRR --> CPT = 1.7103%

What we solved for here was i/4. Then i = 4* 1.7103% = 6.8411% (This is the nominal convertible quarterly)

This comes in handy a lot of ways. Note that if you get IRR=0, then you need to solve it some other way. This happens now and again.

Let's say you have the polynomial 3x^2+2x-1=0. You treat x as v.

C0=-1
C1=2
F1=1
C2=3
F2=1

CPT IRR = 200 remember this is i.

If we want x we have the identity x=1/(1+i). Since i = 200%, x= 1/3. We can find a root for basically any degree polynomial.

Hope that sheds some light.

Useful stuff. Although the second example took me a little while to get used to. I've been doing these problems so far the old fashioned way - by applying the quadratic formula. Once I have the quadratic equation I just punch in b^2 - ( 4 * a * c ) then take square root and subtract b / ( 2 * a ) where all the symbols and operations in the expression have corresponding keys on the calculator, but mine only works for quadratic equations. I think I've occasionally encountered non-quadratic polynomials in the problems, but I've been using trial-and-error to solve those, so now I've got something new in my "arsenal" for those types of problems. Thanks! I also get how to use the NPV key now.

[Akki]

I think this link might help you.
http://www.actuary.com/actuarial-dis...ead.php?t=5459

[(/iropracy]

Useful stuff. Although the second example took me a little while to get used to. I've been doing these problems so far the old fashioned way - by applying the quadratic formula. Once I have the quadratic equation I just punch in b^2 - ( 4 * a * c ) then take square root and subtract b / ( 2 * a ) where all the symbols and operations in the expression have corresponding keys on the calculator, but mine only works for quadratic equations. I think I've occasionally encountered non-quadratic polynomials in the problems, but I've been using trial-and-error to solve those, so now I've got something new in my "arsenal" for those types of problems. Thanks! I also get how to use the NPV key now.

What is messed up about this exam is that one way could be quicker than another. For instance if you get IRR=0 then you just wasted your time. If you rely to much on way to solve things it can hurt you. Be careful not to get stuck using it all the time.

I also just found the bond worksheet on the BA-II Plus. Only useful for one purpose though (so far that I know). Problems like this:

You buy a 1000 par value with 4% coupons paid annually, at a yield of 6% on Oct. 15, 2002. The bond matures at par on Jan. 26, 2009. What is the price?

Anyway, sorry for making this thread something other than the subject at hand.