ASM_Exam FM - Errata List for 11th Edition_10!29!14 (1)

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Shows all of the errors in the 11th edition of Exam FM for actuaries.
  Errata for 11 th  Edition of Exam FM/2 Manual (Last updated 10/29/14) [10/29/14] ote on !han es in Learnin #$%e!ti&es and 'ext eferen!es Changes were made in the Learning Objectives and Text References for the October 2013and December 2014 exams The fo!!owing terms were e!iminated from the s !!ab#s$ %1& investment ear a!!ocation methods' %2& effective d#ration' %3& convertib!e bonds and mandatori! convertib!e bonds' %4& (a !ater strategies )!so* the term +c#rrent va!#e, wasadded to the Learning Objectives The effects of these changes on )-./s .2 man#a! are shown be!ow #nder the items dated 10214 %%There are a!so a co#(!e of correctionsof t (os dated 10214 which are #nre!ated to the above changes& 112012 5age 22* 6 7 )nswer choice %8& sho#!d be 1414112012 5age 2 The +9ote, at the end sho#!d refer to %1 : i& 2n 112012 5age 41* so!#tion to 6 ; 9ote that there is act#a!! no need to ex(!icit! ca!c#!ate i2 rom 1000%1 : i2& 2< = 1*<0* we have %1 : i2& 10  = 1< 102< * > = 1000%1 : i2& 10  = 1000%1< 102< & = 1*2?;32712 5age ;0* so!#tion to 6 1 )dd the fo!!owing note after the so!#tion$ +-ome st#dents inter(ret$ @Ais acco#nt is credited with interest at a nomina! rate of i convertib!e semiann#a!! / to mean that 8r#ce/s acco#nt earns interest on! at the end of each ;Bmonth (eriod Therefore* the reason that after ?27 ears* 8r#ce has on! 100%1 : i2& 14  in his acco#nt Aowever* it is ver im(ortant to note that in xam .2* an acco#nt is a!wa s ass#med to grow with interest contin#o#s! * no matter how the interest rate is stated %eg* as an ann#a! effective rate* as a nomina! rate com(o#nded mBth! * as a force of interest* etc& f there is an exce(tion to this ass#m(tion* it sho#!d be c!ear! stated in the E#estion, 112012 5age ;<* !ast !ine The correct ex(ression for F is 2%1 G 127 B1; & The answer 0?30 is based on this ex(ression112012 5age ;* !ast (aragra(h* 3 rd  sentence The (arenthesis sho#!d refer to +xam(!e 1, rather than +the above exam(!e,10214 5age ?7* so!#tion to 6 < )dd the fo!!owing note at the beginning of the so!#tion$  9ote$ Occasiona!! * o# ma see the term +c#rrent va!#e,* as in this E#estion This sim(! means the va!#e of a series of (a ments on a s(ecified date* some of which are made before that date and some after that date Th#s* +c#rrent va!#e, is the s#m of the )H and 5H of the (a ments on the s(ecified date112012 5age ?<* xam(!e 2* answer choice %)& Re(!ace the c!osing (arenthesis b a c!osing bracFet 72113 5age 2* diagram in the midd!e of the (age 3I a((!ies to a (eriod of J of a ear %The arrows maFe it a((ear as if 3I a((!ies to J of a (eriod* which is K of a ear&;2712 5age 107* so!#tion to 6 1;* 2 nd  !ine 100 v  sho#!d be 100v The so!#tion #ses the correct va!#e ;2712 5age 127* so!#tion to 6 7* first va!#e This sho#!d be 14*113* not 14*133 The so!#tion #ses the correct va!#e  12112 5age 134* so!#tion to xam(!e 1* 2 nd  !ine ?7?0 is missing from the rightBhand side of the eE#ation10214 5age 2;<* 3 rd  (aragra(h #nder the ca(tion +ie!d Rate or nterna! Rate of Ret#rn %RR&,* 4 th  sentence -ho#!d be +M the (resent va!#e of the ret#rns of 500  and <00 decrease,32712 5age 2<<* !ast !ine This !ine sho#!d read as fo!!ows$ > = 100%11& : %20&1 : %?12&%01& G %10&1 : %212&%01& = 12110214 5age 2< nvestment ear a!!ocation methods are no !onger inc!#ded in the s !!ab#s Read on! the first ; (aragra(hs of -ection 7f and ignore the rest of this section %inc!#ding the E#estions at the end of the section& 12112 5age 37;* xam(!e 3 The (rob!em and the so!#tion are inconsistent Change the first sentence of the so!#tion to sa +b maFing semiann#a! interest (a ments to the !ender at a nomina! rate of  interest of 10I com(o#nded semiann#a!! , Change the second sentence to sa $ +The sinFing f#nd earns a nomina! rate of interest of ;I (er ann#m com(o#nded month! ,12112 5age 410* so!#tion to 6 * !ast !ine 1*0<<2? sho#!d be 1*0<4 ;2712 5age 43;* so!#tion to 6 2* 1 st  !ine The reference sho#!d be to -ection <%b&* not -ection ?%g&72114 5ages 447B44 -ince the 11 th  edition of this man#a! was (#b!ished* the .2 exam committee has ado(ted standard termino!og for forward rates for exam (#r(oses %)s noted on (age 44< #nder +Tra( )!ertN arning on Termino!og for orward RatesN,* the vario#s -#ggested TextbooFs #se man different wa s of describing the same forward rate Th#s* it/s a good move on the (art of the exam committee to fina!! s(ecif standard termino!og & This is how a forward rate is defined in +9otation and termino!og #sed for xam .2, %avai!ab!e on www8e)n)ct#ar org&$   Forward rate: An m-year spot rate that comes into effect t years in the future will be referred to as the “m-year forward rate, deferred t years” or as the “m-year forward rate, starting in t years”.  Let/s taFe an exam(!e -#((ose we are to!d that the +3B ear forward rate* deferred 2 ears* is ;I, %or that the +3B ear forward rate* starting in 2 ears* is ;I,& hat this means is that we co#!d maFe an investment 2 ears from now that wo#!d earn ;I (er ann#m over the next 3  ears %ie* over the (eriod from time 2 to time 7 Th#s* if we were to invest* sa * P10*700 at time 2* we wo#!d have an acc#m#!ated va!#e of 10*700%10;& 3  at time 7 Let/s taFe another exam(!e Aow wo#!d o# ex(!ain the fo!!owing forward rateQ The 2B ear forward rate* deferred 3 ears is 4I %or the 2B ear forward rate* starting in 3 ears is 4I& This means that we co#!d maFe an investment 3 ears from now that wo#!d earn 4I (er ann#m over  the next 2 ears* ie* over the (eriod from time 3 to time 7 On (ages 447 and s#bseE#ent in the man#a!* nat#ra!! we don/t #se the officia! termino!og for forward rates* since the 11 th  edition was (#b!ished before this termino!og was ado(ted 9ow that the exam committee has s(oFen* o# sho#!d ex(ect to see the new termino!og on f#t#re exams Her often* o# wi!! dea! with forward rates that are in effect for on! one ear %ie* forward rates for which the +m, in the definition of a forward rate is eE#a! to 1& or exam(!e* if 7I is the oneB ear forward rate deferred 7 ears* it means that we co#!d maFe an investment at time 7 that   wo#!d earn 7I over the oneB ear (eriod r#nning from time 7 to time ; %9ote that this is the same forward rate described in the third (aragra(h #nder +orward Rates, on (age 447* which does not #se the officia! termino!og & o# sho#!d !earn how to determine forward rates from s(ot rates b reading (ages 447B44? and doing exam(!es ;* ? and < on (age 44? )!tho#gh the officia! termino!og is not #sed on these (ages* o# sho#!d not have a (rob!em #nderstanding the conce(ts ee( in mind that o# ma have to modif E#estions on forward rates in the )-. man#a! in terms of the officia! termino!og  or exam(!e* see E#estion 2 on (age 471 The E#estion asFs o# to +Ca!c#!ate the oneB ear forward rate for ear 2 %ie* the oneB ear effective rate d#ring ear  2&, hi!e this is (rett c!ear* it wo#!d have been worded as fo!!ows #sing the officia! termino!og $ +Ca!c#!ate the oneB ear forward rate* deferred one ear, %or +Ca!c#!ate the oneB  ear forward rate* starting in one ear,&72113 5age 4;7* so!#tion to xam(!e 1 The 2 nd  sentence sho#!d refer to xam(!e 2* not xam(!e 3112012 5age 4?;* answer choices %)& to %& The !ower !imit of the s#mmation in each of the denomiB nators sho#!d be designated b t* not i -imi!ar! in the so!#tion 10214 5age 4<? gnore -ection n* since +effective d#ration, is no !onger inc!#ded in the s !!ab#s <?13 5age 72?* ; th  !ine 9ote that +8erm#dian, is a!so s(e!!ed +8erm#dan, 10214 5age 7<3* so!#tion to 6 3 The +9ote, sho#!d refer to -ections 17a* 17b and 17c* not ;a* ;b and ;c 72113 5age ;13* 3 rd  !ine of the so!#tion to xam(!e 11* sho#!d sa $ +The net (remi#m she (a s is 7?<m G 4?;n, 10214 5age ;3< gnore the materia! #nder the ca(tion +5a !ater,* since this is no !onger inc!#ded in the s !!ab#s10214 5ages ;<7 and s#bseE#ent %5ractice xams& 8eca#se the to(ic of investment ear a!!ocation methods is no !onger on the s !!ab#s* ignore the fo!!owing E#estions in the 5ractice xams$ 5 S1* 6 22' 5 S2* 6 20' 5 S3* 6 <' 5 S7* 6 30' 5 S;* 6 23 112012 5age ?3* !ast !ine The s mbo! v 03  sho#!d be v 03 12112 5age ?41* so!#tion to 6 17 The fina! answer sho#!d be B 42* not B 2< The correct answer is not one of the answer choices 4?14 5age ?;3* 6 1; This E#estion sho#!d not have referred to > as the +fina!, (a ment* since there is sti!! an o#tstanding !oan ba!ance after > is (aid De!ete the 3 rd  and 4 th  sentences of the E#estion and re(!ace them b $ +Let > be the tota! amo#nt of the first !oan (a ment which is !ess than P700, -imi!ar! * the so!#tion on (age ??1 sho#!d not have referred to > as the fina! (a ment32712 5age ??3* so!#tion to 6 2; The so!#tion incorrect! #ses the notiona! va!#e in determining the margin ba!ance t sho#!d have #sed the initia! margin ba!ance of P21;*000 Th#s* the new ba!ance after one month is P21;*000 x e 00712  B P42*000 = P1?4*02 The correct answer does not a((ear in the answer choices
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