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4.9. Financial and Actuarial Mathematics (FAM)

This area covers the mathematical foundations of finance and actuarial science, from interest theory and arbitrage pricing to stochastic models for derivatives, risk measurement, actuarial life tables, and computational methods in quantitative finance.

Knowledge Area (KA)	Core Tier1	Core Tier2
4.9.1 Interest Theory and Time Value of Money	1	1

4.9.1. FAM/Interest Theory and Time Value of Money  (Core Tier1: 1 hr, Core Tier2: 1 hr) ↑ Back to top

Time value of money, compound interest, annuities, yield curves, bond pricing, and immunization strategies.
Topics:
Core

• Compound interest: accumulation functions, effective and nominal rates, and force of interest
• Annuities-immediate and annuities-due: present and accumulated values, perpetuities
• Bond pricing: price-yield relationship, duration, convexity, and amortization schedules
• Yield curves: spot rates, forward rates, and bootstrap methods for term structure
• Portfolio immunization: Redington's conditions and cash-flow matching

Learning Outcomes:
Core:

1. Compute the present value and accumulated value of annuities under various interest rate assumptions [Familiarity]
2. Price bonds using the price-yield relationship and calculate duration and convexity for interest rate sensitivity [Usage]
3. Construct a portfolio satisfying Redington's immunization conditions against parallel yield curve shifts [Assessment]