Financial Mathematics (FM) Exam Summary

The FM exam is a crucial step for aspiring actuaries. As of January 2025, this would be a 2.5-hour computer-based test (CBT) consisting of 30 multiple-choice questions. 

Key Goals:

$\bullet \quad$ Understanding fundamental concepts: The exam aims to assess your grasp of core financial mathematics principles, including the calculation of present and accumulated values for various cash flow streams.

$\bullet \quad$ Application in real-world scenarios: It evaluates your ability to apply these concepts in practical situations such as reserving, valuation, pricing, asset-liability management, investment income, capital budgeting, and valuing contingent cash flows.

Exam Format:

$\bullet \quad$ Multiple-choice questions: The exam comprises 30 multiple-choice questions with five answer options (A-E) for each.

$\bullet \quad$ Computer-based: The exam is administered electronically, requiring you to use a computer to answer the questions. You will have to go to the exam center and give the exam there. 

$\bullet \quad$ Instant result: An unofficial pass/fail would be declared at the end of the exam.  

Prerequisites:

$\bullet \quad$ Basic calculus knowledge is assumed.

Chapters:

$\bullet \quad$ Time Value of Money (10-15%): This deals with how the value of money changes over time due to interest rates and the concept of present and future value.

$\bullet \quad$ Annuities (15-20%): Focuses on a series of equal payments made at regular intervals, covering both ordinary annuities (payments at the end of each period) and annuities due (payments at the beginning).

$\bullet \quad$ Loans (15-20%): Explores different loan types, including how interest and principal are calculated and amortized over time.

$\bullet \quad$ Bonds (15-20%): Covers the characteristics, pricing, and risk management of various bond instruments.

$\bullet \quad$ Cash Flows and Portfolios (10-15%): Explores how to analyze and manage investments, including portfolio diversification, risk-adjusted returns, and various yield curve concepts.

$\bullet \quad$ Immunization (10-15%): Focuses on strategies to protect a portfolio’s value from changes in interest rates.

$\bullet \quad$ Interest Rate Swaps (0-10%): Explores financial contracts where two parties exchange interest rate payments on a notional principal amount.

$\bullet \quad$ Determinants of Interest Rates (0-10%): Examines the factors that influence the level of interest rates in the economy.

Study Tips:

$\bullet \quad$ Focus on core concepts: Thoroughly understand the fundamental principles of financial mathematics, including time value of money, interest rates, and cash flow analysis.

$\bullet \quad$ Practice with sample questions: Utilize practice exams and sample questions to familiarize yourself with the exam format and improve your time management.

$\bullet \quad$ Use a financial calculator: The exam allows the use of specified calculators. Practice using your calculator efficiently to solve problems quickly and accurately. For example: Texas BA II Plus Calculator.

$\bullet \quad$ Review the syllabus carefully: Familiarize yourself with the entire syllabus to ensure you cover all the required topics.

By following these tips and dedicating consistent effort to your studies, you can increase your chances of success on the FM exam and take a significant step towards your actuarial career goals.

Remember: The above blog was made on the basis of information available as of January 2025. Always refer to the official exam guidelines and syllabus for the most up-to-date information.