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Financial Mathematics Old FM Forum 

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#1




Should all formulas be memorized? How much time will this save?
I come from a mathematics background where it's generally unwise to rely on memorization of formulas. It's actually rather frowned upon in comparison to understanding how to derive the formulas as needed. So while studying for the FM exam, i spend most of my time learning the concepts thoroughly and doing practice problems, but I'm starting to think it's probably wise to memorize as many formulas as possible. Obviously it's better to both memorize and develop a thorough understanding than to simply memorize, but how much time do you think is actually saved by knowing all the formulas going into the exam? Could one still reasonably expect to ace this exam without memorizing any formulas?

#2




With FM, I would often derive many of the formulas while doing practice exams initially but over time I naturally just had them memorized.
I don't ever remember just sitting down and saying, 'Okay, it's time to memorize formulas.' I would suggest using derivation initially as well because many of the formulas a are very 'close' and going through the derivation a couple times will make sure you don't mess small similarities up.
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#3




But sadly, the most important thing with FM is that BA II plus calculator. I haven't touched mine since the exam but that thing turned multiple problems into 30 seconds of just making a few keystrokes.
Learn how to use it!
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#4




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I would do lots of problems and make note of any formulas that you find are frequently used. Make sure you memorize these.
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#5




For me the bond formulas saved me the most time. Maybe up to 5 minutes per problem in this case.
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#6




You're not really learning anything if you don't memorize. You either have to memorize the "tricks" to derive a formula, or the formula, or preferably both; or you will forget. But in order for memorization to be effective, you need to do problems too. Using memories in different ways makes them stronger.
Right now, the software I use to schedule my memorization says I'm at 89% on facts older than one year old. That is to say, I remember 89% of the facts I haven't seen in over a year perfectly. I'm not showing off. I failed exam p the first time because I didn't remember my calculus, just a few years out of school. Now I know more calculus than I ever did, because I memorized about 1500 calculus formulas. And I know that in a year, I'll remember 89% of that and have my software reschedule the rest. I passed exam p yesterday, and about a third of the problems amounted to me recognizing a distribution from its pdf/cdf/other properties and then remembering some formula about the distribution. That turned 4 minute problems into 1 minute problems. I ended up needing the time for the hard ones! 
#7




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Yes, it's possible to rederive the formula for the expected value an increasing annuity on the fly. But why would you? It's much easier to just memorize, and know where it comes from. Is put/call parity derivable? 
#8




You could use the Law of One Price or BlackScholes (from MFE) to derive it.
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