SOA IFM Exam UPDATED ACTUAL Exam Questions and CORRECT Answers

SOA IFM Exam UPDATED ACTUAL Exam
Questions and CORRECT Answers
Derivative Security (Chp. 1) - CORRECT ANSWER - A financial instrument whose value
depends on another security.


Option (Chp. 1) - CORRECT ANSWER - An agreement allowing the buyer of the option to
buy or sell an asset at a specific price on a specific day.


Clearinghouses (Chp. 1) - CORRECT ANSWER - Matches the buyers and the sellers and
keeps track of their obligations and payments.


Measures of Market Size and Activity (Chp. 1) - CORRECT ANSWER - 1) Trading Volumne
2) Market Value
3) Notional Value
4) Open Interest


Purpose of Derivatives (Chp. 1) - CORRECT ANSWER - 1) Risk Management
2) Speculation
3) Reduced Transaction Costs
4) Regulatory Arbitrage


Hedging (Chp. 1) - CORRECT ANSWER - Guaranteeing a buying or selling price.



Derivative Perspectives (Chp. 1) - CORRECT ANSWER - 1) End User
2) Market-Maker
3) Economic Observer

,Bid Price (Chp. 1) - CORRECT ANSWER - The amount that a person will pay for an asset.



Offer Price/Ask Price (Chp. 1) - CORRECT ANSWER - The price an asset can be bought for.



Bid-Ask Spread (Chp. 1) - CORRECT ANSWER - The difference between the bid and ask
prices.


Stock Orders (Chp. 1) - CORRECT ANSWER - 1) Market Order
2) Limit Order
3) Stop Loss Sales Order


Market Order (Chp. 1) - CORRECT ANSWER - Pays the market price (ask/bid) to buy or sell
stock immediately.


Limit Order (Chp. 1) - CORRECT ANSWER - Specifies the max buying price or min selling
price and not fulfilled until that price is avaliable.


Stop Loss Sales Order (Chp. 1) - CORRECT ANSWER - Specifies that the stock is sold if the
price decreases to the specified amount.


Long Position (Chp. 1) - CORRECT ANSWER - Positive number of units in which the
instrument was bought.


Short Position (Chp. 1) - CORRECT ANSWER - Negative number of units in which the
instrument was sold.


Short Selling Purposes (Chp. 1) - CORRECT ANSWER - 1) Speculation
2) Financing
3) Hedging

,Lease Rate (Chp. 1) - CORRECT ANSWER - The annual cost of holding an asset as a
percentage of the asset value.


Repo Rate/Short Rate (Chp. 1) - CORRECT ANSWER - Repo: interst rate paid by the lender
for bonds.
Short: interst rate paid by the lender for stocks.


Cost of Capital (Chp. 2) - CORRECT ANSWER - Interest rate paid to investors of the project.



NPV [Formula] (Chp. 2) - CORRECT ANSWER -



NPV Perpetuity [Formula] (Chp. 2) - CORRECT ANSWER - NPV = 1/i



NPV Growth Rate [Formula] (Chp. 2) - CORRECT ANSWER - NPV = 1/(i-g)



Break - Even Analysis (Chp. 2) - CORRECT ANSWER - Determine the value of each
assumption parameter for which the NPV is 0.


IRR (Chp. 2) - CORRECT ANSWER - Internal Rate of Return



Sensitivity Analysis (Chp. 2) - CORRECT ANSWER - Caluclating the change in the NPV
resulting from a change in a parameter.


Scenario Analysis (Chp. 2) - CORRECT ANSWER - Calculate the NPV for various scenarios.



Risk Measures (Chp. 2) - CORRECT ANSWER - 1) Variance
2) Semi-Variance

, 3) VaR
4) TVar


Variance [Formula] (Chp. 2) - CORRECT ANSWER - Var(R) = σ² = E[(R - µ)²] = E[R²] - µ²



Standard Deviation [Formula] (Chp. 2) - CORRECT ANSWER - SD(R) = √(Var(R)) = σ



Volatility (Chp. 2) - CORRECT ANSWER - Standard Deviation = Volatility



Semi-Variance [Downside Semi-Variance] (Chp. 2) - CORRECT ANSWER - The square
difference from the mean only when that difference is negative.


Semi-Variance [Downside Semi-Variance] [Formula] (Chp. 2) - CORRECT ANSWER - σ² =
E[min(0,(R - µ))²]


Sample Semi-Variance [Sample Downside Semi-Variance] [Formula] (Chp. 2) - CORRECT
ANSWER - σ² = (1/n) ∑[min(0,(Ri - R))]²



Value-At-Risk [VaR] [Formula] (Chp. 2) - CORRECT ANSWER - VaRα(X) = Fx⁻¹(α)



Downside Tail Value-At-Risk [TVaR] [Formula] (Chp. 2) - CORRECT ANSWER - TVaRα(X)
= E[x|x<VaRα(X)] = (∫xf(x)dx)/α


Upside Tail Value-At-Risk [TVaR] [Formula] (Chp. 2) - CORRECT ANSWER - TVaRα(X) =
E[x|x>VaRα(X)] = (∫xf(x)dx)/(1-α)


Risk Measure Properties (Chp. 2) - CORRECT ANSWER - 1) Translation Invariance
g(x+c) = g(x) + c