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Errata for 10thEdition of Exam FM/2 Manual(Last updated 8/7/13)

[8/7/13 !ote on "han#es in Learnin# $%&e"ti'es for $"to%er 2013

Starting with the October 2013 exam, some topics were removed and some were added tothe list of Learning Objectives. owever, there were no changes in the !ext "eferences.#$or example, altho%gh the topic of &investment 'ear allocation methods( was removed,the !ext "eferences still cover this topic.) *e emailed the $+2 exam committee inearl' -%l' 2013 to tr' to clarif' this sit%ation, b%t we have not heard bac from them./nless we receive information to the contrar', the a%thors of S+s xam $+2 man%als%ggest that 'o% contin%e to learn certain topics that are no longer specificall' listed onthe Learning Objectives. *e have noted what these topics are in the %pdates below dated413. #Other topics that were added to the Learning Objectives are alread' covered b'the man%al or b' the %pdates below.)

[7/17/11 mportant note on immuni*ation+ ,tudents ha'e reported thatthere ha'e %een a surprisin# num%er of -uestions on immuni*ation

(in"ludin# the topi"s of duration and "on'exit.) on re"ent exams he

pra"ti"e exams in this manual "ontain 'er. 'er. fe -uestions on

these topi"s 4e su##est that .ou thorou#hl. re'ie ,e"tions 5" to 5n

%efore .ou ta6e the exam

51120126 7age 21, 8. 9. nswer choice #:) sho%ld be 1;1;.

5;2106 7age 21, 8. 4. !his problem sho%ld act%all' appear after Sections 1a#vi) to 1a#ix).

51120126 7age 2. !he &. .

5329126 7age 94, sol%tion to 8. 1. dd the following note after the sol%tionB &Some st%dents interpretB Cis acco%nt is credited with interest at a nominal rate of i convertible semiann%all' to mean that

:r%ces acco%nt earns interest onl' at the end of each >Dmonth period. !herefore, the' reasonthat after 4.29 'ears, :r%ce has onl' 100#1 = i2)1;in his acco%nt. owever, it is ver' importantto note that in xam $+2, an acco%nt is alwa's ass%med to grow with interest contin%o%sl', no

matter how the interest rate is stated #e.g., as an ann%al effective rate, as a nominal ratecompo%nded mDthl', as a force of interest, etc.). Ef there is an exception to this ass%mption, itsho%ld be clearl' stated in the F%estion.(

5414116 7age >9, 3rdline from bottom, parenthetical remar. Sho%ld be e.g., when #delta)t ? .02t, as in the above example).(

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54136 7age 41, sol%tion to 8. . dd the following note at the beginning of the sol%tionB

, diagram in the middle of the page. 3H applies to a period of I of a 'ear. #!he arrowsmae it appear as if 3H applies to I of a period, which is J of a 'ear.)

5>29126 7age @@, sol%tion to 8. 1>, 2nd line. 100vsho%ld be 100v. !he sol%tion %ses the correct val%e.

5414116 7age 11@, sol%tion to 8. 9. !he first line of the sol%tion was omittedB 1;,113 ? 1,000#aDangleD;.3H, ;< ? 3>, < ? @.

5414116 7age 11@, sol%tion to 8. 4, 2ndline. " ? 190.0 #based on the n%mber of decimal places %sed),not 190.0. !he sol%tion is based on the correct val%e.

513106 7age 13>, sol%tion to 8. 4. On the last line, the denominator sho%ld be 1 D .491319. !heanswer is based on the correct denominator.

513106 7age 13, sol%tion to 8. 1@. !he first line sho%ld sa'B &/sing time 39as the comparison date(. !he sol%tion is based on time 3@.

513106 7age 223, sol%tion to 8. 11. !he wa' the F%estion is worded, the correct answer is #), not #:). s noted in the sol%tion, the acco%nt balance at the end of the th'ear is K;>,@21.>>. -%st after

the 14thf%ll scholarship of K9,000 is awarded, the acco%nt balance is eF%al to #;>,@21.>>)#1.0)14D 9,000#s angle 14) at H ? K;,9@.>. ccording to the F%estion, if there is less than K9,000 inthe acco%nt at the end of an' 'ear, the remaining amo%nt #K;,9@.>) is immediatel' awarded as

a smaller scholarship. !h%s, onl' 14 f%ll scholarships of K9,000 are awarded. at the end of the 14th'ear wo%ld have grown to K9,2;.>9 at the

end of the 1th'ear at H. !his wo%ld have permitted an 1thf%ll scholarship to have beenawarded, b%t this wo%ld not follow the reF%irements of the F%estion.

54136 7age 2.

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5>29126 7age ;2;, sol%tion to 8. 2, 1stline. !he reference sho%ld be to Section #b), not Section 4#g).

5414116 7age ;;, lines from the bottom. dd the following sentence to the parenthesisB En fact, in &.

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appeared on past exams.5;2106 7age >1@, 8. 3. !he problem sho%ld have made it clear that A and P represent the highest and lowest profit, respectivel', if the p%ts are purchased.

5414116 7age >;, the line j%st before Section 1@d. !he res%lt of the calc%lation is K4.99, not K4.91.

5414116 7age >>3. *e s%ggest that 'o% do 7ractice xams ; and 9 first, since most st%dents thin the' are easier than 7ractice xams 1 to 3.

5;2106 7age >4;, last 2 lines. 1039.;9 sho%ld be 1030.;9. !he final answer of 10.3> is correct.

5414116 7age >0, 8.11, page >@>, 8.4, page 412, 8. 23 and page 42>, 8. 24. ll of these F%estionssho%ld sa' that 'o% sho%ld ass%me that no interest is paid to the shortDseller on the proceeds ofthe short sale. , 8. 23. !he F%estion sho%ld mae it clear that the bond was originall' p%rchased to'ield a minimum of H. lso, it sho%ld sa' that the bond mat%res at par in 30 'ears.

513106 7age 431, sol%tion to 8. 14. On the last line, 7 sho%ld be eF%al to 122,219.3. !he answer is still

#N).

5414116 7age 432, sol%tion to 8. 23. !o find the price at which the bond was originall' p%rchased to'ield a minim%m of H, we m%st find the lowest price for all possible redemption dates. !he

price ass%ming mat%rit' at par in 30 'ears, as shown in the sol%tion, is K@;3.411. Ef we ass%methat the bond is called at K1,090 at the end of > to 2@ 'ears, the price wo%ld be greater thanK@;3.411. #!his can be seen b' looing at the premi%mdisco%nt form%la for the price, or b'a co%ple of trial calc%lations.) !h%s, the original price was K@;3.411, as shown in the sol%tion.