Theory

[BL]

Do you think it is necessary to solve the theory type questions such as Broverman's text question 1.3.9? Or questions that say ‘show that’ or derivation of formulas?

[Trelf]

Well, to an extent doing questions like that is valuable as it gets you familair with the formulas and definitions...however, personally, I do not plan on spending much time doing theory questions.

My studying is focussing on knowing the concepts, doing all the questions from past exams I can get my hands on, and being able to set up problems correctly from first principles without relying on formulas.

The number of questions that don't involve a numeric answer on the exam I don't expect to be more than a few.

[louisdj_KSU]

What Trelf said is good advice.

Assuming the questions don't change much from last year's structure, the questions are mainly numerical in nature, requiring you to 'translate' the terms into a numerical structure (time-flow diagram), recognize the appropriate equation or calculator function for the structure, and get the calculator to spit out the right number. Hence, as far as the test itself goes, I would recommend more number problems than theory problems. After all, no one can't put "Prove that A=B." in multiple choice format, not even the SOA, despite how hard they try.

Having said that, their attempts might include questions like "Which of the following has the highest yield rate?" and list for example A) 10 year, $1000 bond with 8% coupons, B) 10 year annuity due with $100 payments, C) 5 year annuity due with $200 payments, D) 10 year annuity immediate with $100 payments, E) 5 year annuity immediate with $200 payments. Last Nov, one of the questions listed a timeline with payments made and payments received, but no amounts, just whether they paid you or you paid them. The question asked for the maximum number of yield rates possible, referring to Descarte's Rule of Signs. So yes, SOA has their way of working around the fact that you cannot write proofs for them, to some degree. However, these type problems have made up about 25% of the interest theory part, where the other 75% ask you to find a numeric value for a variable. From reading the study guide, I'll be curious as to whether they have some questions that just involve definitions, like "Which fromula gives you the time-weighted interest rate?" personally.