7 “Musts” for FM/2

Written by Alex DiVerde: 403558_2842779168588_826946626_n

Hello future Actuaries. For those who have not read my other post, my name is Alex DiVerde and I am a sophomore at Bradley University. I passed Exam 1/P in September and Exam 2/FM a couple weeks ago. I would not have been able to pass either exam without advice from friends who were successful before me. I had a theory of interest class for exam 2/FM and I was on my own for the derivatives material. I wanted to provide those who are considering taking Exam 2/FM with some study tips I found helpful while preparing for it.

Know and use your calculator…A LOT: Success on exam 2/FM relies upon your ability to use a financial calculator. Any of the calculators on the syllabus work well. I used a BA II Plus. Regardless of your choice, know your calculator and practice from day 1 with it. I made the mistake of using the financial calculator application on my TI-83 for most of my studying. The transition to using a BA II Plus was difficult. Do yourself a favor and start with the right calculator.

Know your notation and formulas: Exam 2/FM is formula heavy and you have to know your notation. Do whatever you need to do to learn the formulas. I found flashcards to be the most effective study tool. Regardless of what works, spend a couple hours learning the notation and you will thank yourself.

Take practice exams: I will write on this topic in a following blog post, but practice exams are the best study tool. If you can only do one thing to study, take as many practice exams as you can.

Make derivatives flashcards: To be successful on the derivatives part of Exam 2/FM, you need to know the derivatives concepts. Many questions ask you to pick which financial instrument to use before you get to the math. Until you know the ins and outs of derivatives, these questions will take too much time. Spend the couple of hours needed to make flashcards and memorize these concepts.

Don’t let yourself look up formulas while studying: I am guilty of doing this too often. It is a hard habit to break, but it must be broken. It is you, your brain, calculator, pencil, and paper in the exam room. There is no formula sheet or manual to rely on. Do not set yourself up for failure by using one while you do practice problems or exams.

Know immunization: The next two tips are topics I found to be difficult to master. That being said, as soon as I learned the topics, the questions were significantly easier. Immunization comes up quite a bit in Exam 2/FM and you have to know it to be successful. Give that section in your study materials extra attention to insure that you understand it.

Learn and OWN the annuity relationships: Much of the exam comes from the variations of annuities. Mastering the relationships between immediate, due, present, and future values is key to success. Every annuity problem can be solved several ways. An understanding of the annuity relationships will allow you to convert any annuity problem into a problem you like solving. For example, I converted every annuity into an annuity immediate because I found them the easiest to work with. I knew every variation of the annuity immediate and that allowed me to be successful on each annuity problem.

I hope these tips will help you in your exam preparation. Feel free to contact me with any questions and study on fellow actuaries. I have also written another post with general exam tips you can find here.