A Look Back at Financial Math

Written by Randy Refeld:1002234_610788708938915_86604121_n

I passed Exam FM this past June. The road was bumpy at times, but the path was clear. There were a couple different suggestions for texts on the exam syllabus, but since I took financial math last fall, I used the texts we used in class: Ruckman and Francis for the interest theory section and McDonald for the financial economics section. I also relied heavily on Adapt which prepared me to take the exam.

This is a good time to reflect back on what I could have done differently to be more prepared. The biggest thing I could have done was work more problems when I took the class. The level of mastery for an exam is quite a bit higher than the level of mastery for a class. In the class there typically aren’t “traps” to fall into, and even if you do, there is typically partial credit for showing an understanding of the material. I guess the other thing to be more prepared that would go in tandem with that would have been to have prepared during the class for an actuarial exam, not just to do well in the class.

A more interesting topic is what sort of advice I can give to students preparing for Exam FM. The first is to get CALCULATORS (emphasis on plural) early and practice a lot with them so there are no surprises on exam day. I had a TI-30XS that I had purchased for Exam P and I purchased the BA II plus to prepare for Exam FM. While taking practice exams, I decided to borrow an additional BA II plus from a friend. The reason I decided I needed two of these calculators is that I set one for annuity due and one for annuity immediate so I would not have to switch between the two during the exam.

Also, it is important to know how to set up the calculator, because it will be reset on the day of the exam. The default is to 2 decimal places, and most students want more than 2 decimal places. There is another word of caution here; there is the number of payments per year (P/Y). The default on mine is 1, which is the correct setting. From reading warnings from others, it appears that at some point in the past, the default was 12, which will lead to incorrect answers, so it is important to practice resetting your calculators to the default and then making the changes you wish to make.

The other area I see room for students to improve goes back to the problem solving. Many (maybe most?) of the problems have an easy way and a hard way to solve. Solving one the hard way in practice might feel good and give you a deeper understanding of the topic; there just isn’t time on the actual exam. Watch solution videos, even for problems that you get right on the first try, to see if there is a better way to solve it.

I have stumbled upon a way to measure how you are doing on solving problems the easy way versus the hard way. When I started taking practice exams, I wrote on 50 sheet legal pads (one side only) and used almost one per exam. (I was always close enough to the end that I never tried to put a second exam on the same pad.) Over time my paper consumption was reduced. For the actual exam, you receive 52 pages of scrap paper in a small book that is stapled at page 26. On the actual exam I did not reach the staple, so I used less than 26 pages of paper for the 35 problems. Some problems are longer than others, but if every problem is taking a lot of time and space, you are doing too many the hard way.

This leave me wondering “What next?” I am not sure if I should do Exam MFE or Exam C next. Looking at those along with my strengths and weaknesses points to pros and cons of both exams. I guess this is something actuaries learn to deal with, weigh the costs and benefits, and make a decision.