Exam MFE

Study Program Guide

Fall 2011 exams

Get the most

from your
study
program
see page 7

This document contains important information

Please read this document carefully before starting your study.
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Study Program Guide

Exam MFE

Contents
1.

About the BPP Study Program

2.

Additional help from BPP

3.

Getting the most from

your BPP study materials

4.

Study Skills

5.

Calculator advice, examination tables

and exam tips

11

6.

Your study session planner

13

7.

Syllabus

31

Glossary
Exam MLC - the life contingencies segment of Exam M which is tested by a
3 hour multiple choice examination.
Exam MFE - the financial economics segment of Exam M which is tested by a
3 hour multiple choice examination.
Note:

This Study Program Guide relates to Exam MFE only.

Exam MFE

Study Program Guide

Welcome
Were confident that this BPP Exam MFE study program will have a very positive impact on the
way you study for the actuarial exams. We believe that students should spend their time
focusing on learning and preparing for the exam, not juggling their time between textbooks,
separate solution manuals and then additional study manuals to re-explain those textbooks and
solution manuals!
No other provider of actuarial education offers such a wide range of coordinated support,
including:

introductory online lectures

comprehensive course notes
exam-style question & answer banks
email tutor support.

Weve designed the course to cover all the learning objectives in an order thats right for you.
Our course notes provide clear explanations of the syllabus, and over 200 worked examples and
practice questions, all with full solutions.
Our introductory online lectures are fully coordinated with the course notes. They will ensure
that you can get a good introduction to each topic prior to reading the course notes.
Our question and answer bank contains 300 exam-style questions to give you the practice
necessary to maximize your opportunity for success in the actual examination.
For BPP, providing a study program means providing a commitment to support students all the
way through to the exam. Our full-time tutors will answer any questions you may have by email
so that you always have the support you need. We also offer seminars to give you the very best
chance of success in the exam.
Passing the actuarial exams is difficult enough. We understand that youre competing against
some very bright people and that its always hard to find time for studying between working and
spending time with friends and family. BPPs study programs organize your study effectively
and provide the very best support. They will help you maximize your chances of success in the
exam and to make good progress towards qualification.
As you have more contact with BPP, youll find us to be a very friendly and proactive company.
We are committed to providing high quality study support. We respond quickly to students
requests and will do all we can to meet your specific needs. We look forward to helping you.
Good luck with your studying.

David Wilmot
Director of Education
** Note to CAS students: We know that this subject is called Exam 3F by the CAS, but well use
the description Exam MFE throughout this Study Program Guide. We think this makes the
text easier to read than using the rather awkward Exam MFE/Exam 3F.

Study Program Guide

Exam MFE

1 About the BPP Exam MFE study program

BPPs Exam MFE study program has everything you need to know, containing 4 coordinated
sources of help.

Online lectures
Our introductory online lectures introduce all of the
main topics.
The lectures are coordinated with the BPP course
notes to give you the most comprehensive study
support available.
You can watch them as many times as you like as
an overview before you study the course notes, or to
help you review the material youve just covered.
Either way, together with the course notes they will
help you to understand even the most difficult areas
of the syllabus.

Course notes
These comprehensive notes are divided into 10 chapters to help you structure your progress
through the session leading to the exam.
Chapter

Title

Introduction to options

Put-call parity and other relationships

The one-step binomial model

Multi-step binomial trees

The Black-Scholes formula

Hedging

Exotic options

Brownian motion and Its lemma

Interest rate models

Monte Carlo methods

These course notes include clear explanations of all the main theory plus over 200 worked
examples and practice questions (all with full explanatory solutions).
The course notes fully meet the learning outcomes of the Exam MFE syllabus.

Exam MFE

Study Program Guide

Question & Answer Bank

The Question & Answer Bank contains 316 exam-style questions, 93 of which are based on past
exam questions / SOA sample questions and the rest consist of original questions written by our
team of instructors. We provide a detailed line-by-line solution to every question, to help you
learn the techniques required to pass the exam.
The questions are coordinated with the course notes through our study session planner in
Section 6 of this Study Program Guide. We list the questions that you can attempt after having
completed each chapter of the reading.

Email tutor support

Our email support service is designed to help you with the most difficult areas of the course.
Well answer your questions thoroughly and quickly so that you can get on with your studying
with no worries. Please refer to the FAQs section of our website for further guidance regarding
email support.

Getting help with your studying by email

Before submitting questions we do expect students to work through the material carefully and to
check first the Course MFE student mailbag at www.bpptraining.com, as we put answers to
frequently asked questions about the course material on our website.
If you remain stuck, you can email technical questions about the course material to our team of
tutors at:
examMFEsupport@bpptraining.com
Please help us to help you by stating your name and your question clearly,
with page references if appropriate.
If you have any non-technical questions about BPPs study programs, you
should send an email to:
info@bpptraining.com

Study Program Guide

Exam MFE

2 Additional help from BPP

Practice exams
BPPs practice exams look and feel just like the real thing theyre designed to give you a realistic
test of your exam preparation. Each practice exam contains brand new exam-style questions and
is supplied with full explanatory solutions. The practice exams are another helpful source of
exam-style questions, especially for students who have worked through all the other questions.

Flashcards
BPP offers user-friendly flashcards to supplement the study program. Theyll help you review
and remember the most important formulas, lists, concepts and other pertinent information.
Memorizing the important formulas and knowing how to use them are the most effective exam
preparation approach for many students, and our flashcards are very helpful in this regard.

Find out more at www.bpptraining.com

For more information on BPPs full range of
products and services, visit our website at
www.bpptraining.com.
Our website includes many free samples to
download, including course notes, online lectures,
and online tests.
Youll also find special discounts available only
through our online store, where you can order
24 hours a day, 7 days a week.

Exam MFE

Study Program Guide

3 Getting the most from your study materials

Order of study
To help you plan your study, weve divided the course into 10 study sessions. The detail of each
session appears later in this Study Program Guide. However, each of your study sessions should
include four main activities:
1.

Introduction - Watch an online lecture

The online lectures are designed to introduce the main conceptual ideas and to help you
towards understanding the most difficult areas. These introductory online lectures are
not a replacement for reading the comprehensive course notes, but they will help you to
study more efficiently by identifying the important topics and explaining how the parts
of the course are related.

2.

Key learning Read the related sections of the course notes

The course notes include detailed explanations of the topics covered by the Learning
Outcomes, along with over 200 worked examples and practice questions. As you work
through the course notes, you should try to study actively and think about what youre
reading. (Active study is discussed in the Study Skills section of this Study Program
Guide.)

3.

Evaluate learning Test your understanding

At the end of each chapter there are a number of practice questions. These questions are
designed to test your understanding of the syllabus. Most of them are shorter and more
straightforward than genuine exam-style questions, but every question is designed to test
a concept, technique or formula that you will need to know in order to pass the exam.

4.

Practice answering exam-level questions Question & Answer Bank

After learning the important concepts and formulas, the most important way to prepare
for the exam is to practice exam-style questions. The other tasks in each study session are
designed to help you reach the standard required to attempt these longer and more
difficult questions. The Question & Answer Bank contains over 300 questions, all with
full explanatory solutions plus hints and tips.

Its a fact that people are more likely to remember something if they review it periodically. So, do
look over the chapters you have studied so far from time to time. You may also find it useful to
review the online lectures and online tests (where purchased).
The secret to success in preparing for actuarial exams is to practice, practice, and then practice some
more!

Study Program Guide

Exam MFE

Focus of study
When studying, it is generally worth remembering that certain areas of the syllabus are often
more important than others. One measure of importance is the frequency that exam questions
appear on each topic. Past experience is no guarantee of the future and in this case we dont have
much published past experience! A reasonable expectation might be that questions appearing in
the exam will be drawn evenly from across the full range of learning outcomes. Equal weight of
attention should thus be given to all the chapters in the course notes.

Un-examinable topics
While you study, it is worth bearing in mind that knowledge of proofs is highly unlikely to be
tested within a multiple-choice examination. Although memorizing the proofs of key theorems
may not be good use of your time, working through such proofs is often worthwhile as you will
learn something that may be required in a new style (more conceptual) question that requires
first-principles thinking.

Exam MFE

Study Program Guide

6 Your study session planner

Overall study plan
You should set a study plan that is realistic for you, based on when you start studying for the
exam, your prior knowledge, and other commitments.
Here is a sample study plan based on a start date in July 2011. There is a lot of material to get
through so starting on an earlier date would be prudent, particularly if you are also studying for
Exam MLC! This plan can easily be modified as needed if you want to start on a different date or
study at a different pace, but always keep the exam date in mind since it arrives quickly!
Weeks #

Weeks beginning

Activity

1-2

July 11

Study sessions 0 and 1

3-4

July 25

Study sessions 2 and 3

5-6

August 8

Study session 4 and 5

August 22

Review study sessions 0-5 (Work in Q&A Bank)

8-9

August 29

Study session 6 and 7

10-11

September 12

Study session 8

12

September 19

Study session 9

13

September 26

Contingency for holidays, unexpected events, catch-up etc

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October 3

Review study sessions 6-9 (Work in Q&A Bank)

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October 10

Review period

16

October 17

17

October 24

Focus on practicing exam-style questions from the Q&A Bank

under time pressure and memorizing unintuitive formulas
that cannot be written down from conceptual understanding.

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October 31

Attempt a BPP practice exam.

Identify your weaknesses and work to eliminate them.

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November 7

Exam MFE examination (November 10-16)

Planning your study sessions

The following pages are designed to help you plan each of your study sessions in order to make
steady progress through the course.
Take care! It is important to get through all of the material, reviewing it several times, and to
work through a lot of exam-style questions. The potential trap is for you to get bogged down in
one area with the result that you dont then have time for a thorough review of all of the material.

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Study record

Online lectures

Study Session
0

Use this table to record your progress. Enter the date you complete each task and study session.

Watch BPPs online lecture(s) for each study session.

The lectures provide an overview of the relevant topics.
Watch Online Lecture 1 before reading Chapter 0 and Chapter 1.
Watch both Online Lecture 2 and Online Lecture 3 before reading Chapters
2 and 3.
Thereafter watch the Online Lecture for each chapter in sequence.

Reading
Read the relevant section of the course notes (the session pages that follow tell
you what to read).
Work through end-of-chapter questions to test your understanding.

Question & answer bank

Attempt questions from the question & answer bank for the chapters you
have just read.
The question & answer bank contains brand new exam-style questions.

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Exam MFE
Study Program Guide

Exam MFE

Study Program Guide

Study session 0
This is an introductory study session that covers the prior knowledge
needed for this course.
Required reading: Chapter 0 of the BPP course notes

Hints, tips and advice

Most of the exam questions on an Exam MFE examination paper will assume knowledge of the
concepts covered in this study session.
Important topics (ie most likely to be examined) in this area are:

1.

terminology for stocks, forwards, options and other financial instruments

2.

payoff functions for call options, put options and forwards

3.

calculating forward prices and prepaid forward prices

4.

option prices, intrinsic value and time value

5.

the concept of holding long and short positions in an asset

In the course notes, weve placed a box around the important formulas to help you identify them
for your review. (During the exam, you wont have time to derive many formulas, so by the
exam it is important to be able to write them down from solid conceptual understanding or to
have memorized the most difficult and unintuitive ones!)
Calculator techniques/shortcuts/exam hints:

1.

2.

Be careful not to mix up call and put options:

a call option is an option to buy the underlying asset. Its payoff function
at time T is max[ST K , 0] .

a put option is an option to sell the underlying asset. Its payoff function
at time T is max[K ST , 0] .

Note that whether an option is in-the-money, at-the-money or out-of-the-money

depends only on the options strike price and the current price of the underlying
asset. It does not depend on whether an investor has a long or a short position in
the option.

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