Worked solution · Exam FM
This Exam FM sample reference tests Cash-Flow and Risk Matching. Exact matching requires redemptions 4,000 and 6,000 in the one- and two-year zeros; discounting at their respective yields gives total current cost 8,573, choice B.
Independent solution
Setup
Zero-coupon redemptions can be aligned directly with each liability date.
Model
The required face amounts equal the liabilities, while their purchase costs use the yield for the matching maturity.
Compute
The one-year position costs 3,703.70 and the two-year position costs 4,869.35.
Answer
The exact-match portfolio costs about 8,573, so choice B is correct.
Test the method on unseen problems
30 original general cash flows, portfolios, and asset liability management problems with complete solutions and wrong-choice analysis. Written for Exam FM, not copied from the SOA set. One-time $19 PDF.
Original practice · fully worked
A sculpture fund must deliver 2,500 after one year and 4,000 after three years. One-year zeros yield 4% and three-year zeros yield 6%, both effective annually. Calculate the current cost of exact cash-flow matching.
Discounting each liability at its matching zero yield gives total cost 5,762.32, choice C.
Setup
Each zero-coupon holding can be selected to mature for exactly one required delivery.
Model
Apply the one-year yield only to the first amount and the three-year yield over all three years to the second.
Compute
The two current costs are 2,403.846 and 3,358.477.
Answer
Their sum is 5,762.32, which is choice C.
Keep practicing
These references share syllabus concepts or sit nearby in the official sequence. All 117 Exam FM general cash flows, portfolios, and asset liability management practice problems.
Keep studying
Work through the related free solutions for this topic, review the formulas you used, or keep every current Exam FM solution in one searchable PDF.
