can I teach myself this in 2 months?

[Kuciwalker]

I'm pretty sure yes, though the fact that they recommend 5 textbooks totalling over $500 is a little unnerving.

http://www.casact.org/admissions/syllabus/Exam2Aug09.pdf

LEARNING OBJECTIVES

I. Interest Theory

A. Time Value of Money

1. The candidate will be able to define and recognize the definitions of the following terms:
a. Interest rate (rate of interest)
b. Simple interest
c. Compound interest
d. Accumulation function
e. Future value
f. Present value/net present value
g. Discount factor
h. Discount rate (rate of discount)
i. Convertible m-thly
j. Nominal rate
k. Effective rate
l. Force of interest
m. Equation of value

2. The candidate will be able to:
a. Given any two of interest rate, present value, or future value, calculate the third based
on simple or compound interest.
b. Given any one of the effective interest rate, the nominal interest rate convertible m-thly,
the effective discount rate, the nominal discount rate convertible m-thly, or the force of
interest, calculate all of the other items.
c. Write the equation of value given a set of cash flows and an interest rate.

B. Annuities with payments that are not contingent

1. The candidate will be able to define and recognize the definitions of the following terms:
a. Annuity-immediate
b. Annuity-due
c. Perpetuity
d. Payable m-thly
e. Level payment annuity
f. Arithmetic increasing/decreasing payment annuity
g. Geometric increasing/decreasing payment annuity
h. Term of annuity

2. The candidate will be able to:
a. Given an annuity with level payments, immediate (or due), payable m-thly, and any
three of present value, future value, interest rate, payment, and term calculate the
remaining two items.
b. Given an annuity with non-level payments, immediate (or due), payable m-thly, the
pattern of payment amounts, and any three of present value, future value, interest rate,
payment amounts, and term of annuity calculate the remaining two items.

C. Loans

1. The candidate will be able to define and recognize the definitions of the following terms:
a. Principal
b. Interest
c. Term of loan
d. Outstanding balance
e. Final payment (drop payment, balloon payment)
f. Amortization
g. Sinking fund

2. The candidate will be able to:
a. Given any four of term of loan, interest rate, payment amount, payment period,
principal, calculate the remaining items.
b. Calculate the outstanding balance at any point in time.
c. Calculate the amount of interest and principal repayment in a given payment.
d. Given the quantities, except one, in a sinking fund arrangement calculate the missing
quantity.

D. Bonds

1. The candidate will be able to define and recognize the definitions of the following terms:
a. Price
b. Redemption value
c. Par Value/Face value
d. Coupon, Coupon rate
e. Term of bond
f. Yield rate
g. Callable/non-callable
Materials for Study, August 2009 Exam 2 E2-3
h. Book value
i. Accumulation of discount

2. The candidate will be able to:
a. Given any four of price, redemption value, yield rate, coupon rate, and term of bond,
calculate the remaining item.

E. General Cash Flows and Portfolios

1. The candidate will be able to define and recognize the definitions of the following terms:
a. Yield rate/rate of return
b. Dollar-weighted rate of return/Time-weighted rate of return
c. Current value
d. Duration (Macaulay and modified)
e. Convexity
f. Portfolio
g. Spot rate
h. Forward rate
i. Yield curve
j. Stock price, stock dividend

2. The candidate will be able to:
a. Calculate the current value of a set of cash flows.
b. Calculate the portfolio yield rate.
c. Calculate the dollar-weighted and time-weighted rate of return.
d. Calculate the duration and convexity of a set of cash flows.
e. Calculate either Macaulay or modified duration given the other.
f. Use duration and convexity to approximate the change in present value due to a change
in interest rate.
g. Calculate the price of a stock using the dividend discount model.

F. Immunization

1. The candidate will be able to define and recognize the definitions of the following terms:
a. Cash-flow matching;
b. Immunization (including full immunization);
c. Redington immunization.

2. The candidate will be able to:
a. Construct an investment portfolio to fully immunize a set of liability cash flows.
b. Construct an investment portfolio to match present value and duration of a set of
liability cash flows.
c. Construct an investment portfolio to exactly match a set of liability cash flows.

II. Financial Economics

A. General Derivatives

1. The candidate will be able to define and recognize the definitions of the following terms:
a. Derivative, Underlying asset, Over-the-counter market
b. Ask price, Bid price, Bid-ask spread
c. Short selling, Short position, Long position
d. Stock index
e. Spot price
f. Net profit/payoff
g. Credit risk
h. Marking-to-market
i. Margin, Maintenance margin, Margin call

2. The candidate will be able to evaluate an investor's margin position based on changes in
asset values.

B. Options

1. The candidate will be able to define and recognize the definitions of the following terms:
a. Call option, Put option
b. Expiration, Expiration date
c. Strike price/Exercise price
d. European option, American option, Bermudan option
e. In-the-money, At-the-money, Out-of-the-money
f. Covered call, Naked writing
g. Dividends
h. Put-call parity

2. The candidate will be able to evaluate the payoff and profit of basic derivative contracts.

C. Hedging and Investment Strategies
1. The candidate will be able to define and recognize the definitions of the following terms:
a. Hedging, Arbitrage
b. Diversifiable risk, Nondiversifiable risk
c. Synthetic forwards
c. Spreads (including bull, bear, box, and ratio spreads)
d. Collars (including zero-cost collars), Paylater strategy
e. Straddles (including strangles, written straddles and butterfly spreads)
f. Convertible bond, Mandatorily convertible bond

2. The candidate will be able to:
a. Explain how derivative securities can be used as tools to manage financial risk.
b. Explain the reasons to hedge and not to hedge.
c. Evaluate the payoff and profit of hedging strategies.

D. Forwards and Futures

1. The candidate will be able to define and recognize the definitions of the following terms:
a. Forward contract, Prepaid forward contract
b. Outright purchase, Fully leveraged purchase
c. Implied repo rate
d. Cost of carry
e. Lease rate
f. Futures contract

2. The candidate will be able to:
a. Determine forward price from prepaid forward price.
b. Explain the relationship between forward price and futures price.
c. Explain the relationship between forward price and future stock price.
d. Use the concept of no-arbitrage to determine the theoretical value of futures and
forwards.
e. Given any four of call premium, put premium, forward price, strike price and interest
rate, calculate the remaining item using the put-call parity formula.

E. Swaps
1. The candidate will be able to define and recognize the definitions of the following terms:
a. Swap, Prepaid swap
b. Swap term, Swap spread, Notional Amount
c. Simple commodity swap, Interest rate swap
d. Deferred swap

2. The candidate will be able to use the concept of no-arbitrage to determine the theoretical
values of swaps.

[KrazyHorse]

It'll take like 3-4 days of solid work and then you should be able to write an exam covering those topics.

That list looks like the first half of one of my classes, say stuff I did in Sept-Oct 2008, and I can still answer questions on 90+% of it.

Why are you taking this, by the way? Pure interest or do you plan to try to get a job? It's not a good market for people with bachelor's degrees to become quants. Even the MFEs are apparently having trouble. PhD finance, math and physics will still get you in the door as a quant. MSc/PhD compsci will get you a developer job. Anybody else without experience is SOL.

[Kuciwalker]

I wouldn't be looking for a job as a quant. I'd be looking for a job as an actuary.

Passing one or more of the exams is the major hurdle for entry into that market, for me.

[Jon Miller]

I had a friend who did it with a physics major.

I don't think he found it all that difficult, he might have spent longer than 2 months studying.

I don't think you should have problems if you actually spend (a reasonable portion of) 2 months studying.

JM

[KrazyHorse]

Isn't BC an actuary?

[Kuciwalker]

I thought he was some flavor of accountant.

[Kuciwalker]

More relevantly, my dad is an actuary (and very relevantly, pretty well-known within the community).

[Drake Tungsten]

I'm surprised at how much of that I still remember.

[Asher]

ROCK STAR ACTUARY!

[Kuciwalker]

ROCK STAR ACTUARY!

That's not coming out until next year.

[KrazyHorse]

OMFG. Is this the exam:

http://www.beanactuary.org/exams/exam_info.cfm

(specifically financial math exam)

I scanned through the sample exam. My eyes started bleeding from boredom.

Just a bunch of definitions of interest rates (BTW, "force of interest"? Really?) followed by a couple of vanilla coupon bond p.v.s and one or two matching cashflow thingies.



Call it 1-2 days. At most.

[KrazyHorse]

Is the probability exam any harder or is it just as silly?

[Kuciwalker]

I'm pretty sure that I could do the probability exam cold.

(Gonna study anyway - I can do all the math fine, but it's been years since I've actually crunched some of those numbers, so I'd be a little slow.)

[KrazyHorse]

Looks like there might be one or two integrals to do on that one. Will you be ready for it?

[rah]

When I worked for an insurance company, they gave you bonuses for passing the LOMA exams (passed them after about 10 minutes of studying) and the Actuarial exams. They even let you study for them during work time. They were considerably harder. I passed the first few but then stopped since the studying started to take more time then the bonuses they were awarding for passing. But if you completed all 10 (besides being given the title) they paid for your trip to the annual conference which was usually someone nice like Hawaii.