SOA Exam IFM: Investment and Financial Markets

SOA Exam IFM: Investment and Financial Markets

On your way to becoming an actuary, the Society of Actuaries (SOA) Exam IFM will most likely be your third actuarial exam. It is among the three preliminary professional tests (the other two being Exam P and Exam FM) that set the stage for what is to come – more exams.

Looking to have a shot at Exam IFM? And now you’re trying to know as much as you can before making the move.

You’re just in the right place. In this post, you’ll get to know all that there is about this third preliminary exam. What it is about, the topics you’ll encounter, registration – name it.

Before getting started, if you’re looking for study materials and question banks for SOA Exam IFM, click here:

Now let’s get started.

Exam IFM: What is it all About?

Exam IFM bears some resemblance to the other two preliminary exams – in format and the way it is conducted.

First off, it is a multi-choice type of test. This means, if you didn’t know already, you select the answer you deem correct among those provided. In this case, you’ll have up to five answer options to choose from in the form of A, B, C, D and E. Another similarity is that it’s conducted via computer-based testing otherwise abbreviated to CBT.

You’re expected to spend a maximum of 3 hours on this exam and attempt a total of 30 questions.

Well, all those may be worth knowing but they aren’t as important as what exactly is covered in Exam IFM. What knowledge is contained in its syllabus that will be of use to you in your actuarial practice?

This exam builds up your knowledge of the theoretical elements of corporate finance and financial models. Additionally, you become conversant with how the financial models are utilized not only in insurance but also other financial risks.

For a smooth ride, or at least a more bearable one, you must be good at certain concepts – by the way, you’re expected to have a grasp of these before signing up for the exam. Below, is a list of these concepts and where you should have learned them:

  • Calculus and probability – part of the Exam P syllabus
  • Interest theory – found in the Exam FM curriculum
  • Corporate finance – you’ll cover this in VEE accounting and corporate finance.

In the case of corporate finance, the basics will be just enough for SOA Exam IFM. But for the calculus, probability and interest theory, you’re going to need a good command of them.

That aside, hope you’ve seen why it’s only necessary to attempt Exams P and FM first from the above pre-requisite concepts. They sort of prepare you for this particular one. And yes, you’ll have to pass each of them before you’re allowed to proceed.

Exam IFM topics

Exam IFM from the Society of Actuaries has the most number of topics among all the three preliminary exams – a total of 10. We will look at them shortly.

Before that, there a couple of points you need to note as far as these topics are concerned:

  • Don’t get all cozy with the topics listed here. Sometimes the syllabus does change. So it’s good to keep an eye out to be in the know as soon as it happens. It is as simple as opening this page.
  • The weights indicated here are not the be all end all. Variations are bound to occur. Keep that in mind.
  • Some questions may need the consolidation of concepts across different topics. So you must think out accordingly if you want to pass (who doesn’t?).

With that cleared up, here are the topics (the percentages in brackets represent the portion of the exam taken up by each topic):-

  1. Mean-variance portfolio theory (10 to 15%)
  2. Asset pricing models (5 to 10%)
  3. Market efficiency and behavioral finance (5 to 10%)
  4. Investment risk and project analysis (10 to 15%)
  5. Capital structure (10%)
  6. Introductory derivatives – forwards and futures (5 to 10%)
  7. General properties of options (10 to 15%)
  8. Binomial pricing models (10%)
  9. Black Scholes option pricing (10 to 15%)
  10. Option Greeks and risk management (5 to 10%)

And now a detailed look at each one of them…

Mean-variance Portfolio Theory

The topic revolves around, as in the name, the mean-variance portfolio theory. By being exposed to this topic, you’ll have an understanding of the rules of this theory and the principal outcomes.

What will your capabilities be after this topic?

First off, you should be in a position to expound on the two aspects of portfolios – that is the mathematics side of it and summary statistics. So you should be able to work out:-

  • The risk of return of an asset using the provided information.
  • The risk and expected return of a portfolio of many risky assets. You’ll be provided with the expected return, volatility and correlation of returns of each of the assets.

Aside from that, you’ll be in a position to perform mean-variance analysis. Here are some pointers as far this is concerned:-

  • An understanding of the mean-standard deviation diagram and the associated efficient market frontier
  • An ability to calculate optimal portfolio as well as determining the location of the capital market line
  • An understanding of how to employ diversification across multiple securities or asset classes to reduce portfolio risk.

Asset Pricing Models

Through this topic, you’ll learn about the various methods used in the valuation of asset portfolios as well as explaining why the methods will be fit for given scenarios.

So at the end of it, you’ll be expected to have a grasp in two segments – the Capital Asset Pricing Model (CAPM) and factor models.

For CAPM, the outcomes include:-

  • Explaining what its
  • Knowing its properties and assumptions
  • Using it to evaluate the return on an asset, a project or portfolio.

For factor models, you should be able to:-

  • Explain what they are
  • Employ both single-factor and multi-factor models to calculate the required return on an asset, a portfolio or project
  • State the assumptions of a factor model for security returns
  • Given the factor equation of a security, identify factor betas, the expected return, factors and other components

Market Efficiency and Behavioral Finance

You’ll learn what “efficient markets” means and how inefficiencies are born out of irrational errors by participants.

So you’ll have two main parts to think of (and master)

  1. Market efficiency
  2. Behavioral finance

For market efficiency, the main goal is to be able to understand and explain what efficient markets are. So the important details are the efficient market hypothesis, its different forms (that is strong, semi-strong and weak) and evidence in support and against each of the three forms.

Behavioral finance is more about being able to point out instances when EMH doesn’t hold. Also, you should know and explain the possible cause of given asset prices deviating from their fundamental values.

Investment Risk and Project Analysis

This will teach you about investment risk measurement – the different ways of going about it.

Another area of concern will be project analysis. This will also cover methods of going about it, but they’ll be the advanced ones used in capital budgeting.

So you’re expected to be able to understand all the nits and grits of the different measures of risk – advantages and disadvantages – and the accompanying calculations. Some of these measures include variance, semi-variance, Tail Value-at-Risk (TVaR) and Value-at-Risk (VaR).

Also, you should be able to conduct risk analysis using several methods – Monte-Carlo simulation, break-even analysis, sensitivity analysis, and scenario analysis. Besides this, you’ll also need to apply a decision tree in modeling future results and real options analysis.

Capital Structure

There are factors a company has to consider when settling on a capital structure. This is the core focus of this topic.

Therefore, further on, you’ll understand the available options for raising capital and the effect a particular capital structure will have on a company.

On raising capital, you’ll cover equity and debt issues as the two main forms of financing. Additionally, you’ll get to understand the process of raising capital in any company – private placement, IPOs, venture capital, and additional issues.

For the capital structure, you will look at how changes in capital structure can impact several aspects of the company like cost of debt, its value, the weighted average cost of capital, and equity beta.

Introductory Derivatives – Forwards and Futures

As an actuary, you’ll have the responsibility of managing risk – and there is a ton of ways of going about it.

Introductory derivatives will expose you to one of these ways – using futures and forwards contracts with an underlying asset.

In doing this, you will be able to explain the properties and terms of main derivatives, those related to forwards contracts and prepaid forwards contracts, and those related to futures contracts and the accompanying margin accounts.


Includes forwards and futures. Under this, you’ll

  • Differentiate long and short positions for assets and the derivatives on them
  • Understand the transaction costs that have bearing on profit calculations for assets and derivatives.


Under this you’ll be able to:

  • Define terms relating to the timed purchase of stock. They include prepaid forward contract, fully leveraged purchase, forward contract, and outright purchase.
  • Find payoffs and profits for long and short positions on a forward contract.
  • Calculate prices for both forward contracts and prepaid forward contracts on stocks under different scenarios – with no dividends and with dividends, continuous and discrete
  • Come up with a synthetic forward from the underlying stock and a risk-free asset. You should also be in a position to identify arbitrage opportunities when the synthetic forward price differs with the market forward price.


  • Define margin balance, maintenance margin, marking market, and margin call.
  • Analyze an investor’s margin balance as per the changes in asset values.

General Properties of Options

Another topic with a direct reference to risk management. It covers how call and put options can be used with the underlying asset to manage risk.

By the time you’re through with it, you’ll be able to:


  • Definition of terms – strike price, call and put options, option style, expiration date, and moneyness.
  • Calculation of payoff and profit on long and short positions with regards to both call and put options.
  • Evaluation of payoffs on exotic options – barrier, exchange, Asian (both arithmetic and geometric), compound, and gap.

And so on.


  • Understand the significance of a long put as an insurance strategy for a long stock position. The same goes for a long call as an insurance strategy for a short stock position.
  • Be conversant with the option strategies tools used in both management of financial risk and speculation on price/volatility. Some of the strategies are butterfly spread, straddle, collar, strangle, etc.
  • Calculate the payoff and profit of the above strategies.

  • Apply put-call parity to European options on stocks under different circumstances – with discrete dividends, with no dividends, with continuous dividends, etc.
  • Compare options under term-to-maturity and strike price.
  • Know factors affecting the early exercise of American options and instances where the American options are identical to the European ones.

Binomial Pricing Models

The topic focuses on binomial trees – their use in estimating the prices of American and European call and put options on the given underlying assets.

As a learner, you’ll be able to:

  • Appreciate the no-arbitrage concept when having a side by side comparison of actual and synthetic calls/puts.
  • Familiarize yourself with the basics of the risk-neutral approach to valuing derivatives securities in the Binomial Option Pricing Model framework.
  • Price options under a one-period binomial model on a stock with no dividends.
  • Extend the binomial model to multi-period setting for pricing both European and American call and put options.
  • Extend the binomial model to other underlying assets like currencies, futures contracts, and stock indices with continuous dividends.

Black-Scholes Option Pricing

The topic title straight up summarizes what this is all about – pricing of European call and put options on underlying assets using the Black-Scholes Formula.

Areas you should be good at at the end of the topic are the lognormal distribution and its applicability in option pricing and various aspects of the Black-Scholes formula.


You should be able to calculate:

  • Lognormal-based conditional expectations of stock prices in the instance where options expire in-the-money.
  • Lognormal-based probabilities and percentiles for stock prices.
  • Lognormal-based means and variances of stock prices.

Here’s what you should have at your fingertips:

  • Assumptions of the Black-Scholes model.
  • Generalization of the Black-Scholes Formula to value gap calls, exchange options, forward start options, gap calls, and chooser options.
  • Use the formula to value European calls and puts on stocks indices with continuous dividends, stocks with no dividends, and stocks with dividends, currencies, and futures contracts.
  • Using past price data to estimate a stock’s historical volatility.

Option Greeks and Risk Management

This last topic focuses on those two areas – Option Greeks and risk management methods – and how they can be used to form hedged asset portfolios with positions in options and the underlying asset.

The skills you’ll gain here can be divided into 3 distinct parts:

  1. Those to do with option price partial derivatives
  2. Use of options to control risk in a hedging context
  3. Options and other derivatives in actuarial-specific risk management


Under this section, you should be able to explain the application of option price partial derivatives as well as the underlying calculations. A few points here include:

  • Approximating option prices using Gamma, Theta, and Delta.
  • Computation as well as interpretation of Option Greeks – Rho, Theta, Gamma, Psi, and Delta.
  • Computing the elasticity, risk premium, and Sharpe ratio for both individual call or put options and a portfolio made up of multiple option types and the underlying stock.


The section requires that you understand, and therefore explain, how options are used to manage risk in a hedging context.

At the end of it, you’re expected to be able to perform both gamma and delta hedging – this will be by way of evaluating the quantities of option units and stock shares to hold, and whether the positions should be long or short.


This last section is about the application of options and other derivatives in managing risk in an actuarial-specific risk management case.

By the time you’re through with it, you’re expected to be able to:

  • Understand the formation of investment guarantees from equity-linked insurance and annuities.
  • Understand the use of derivatives in hedging long-term risks from the asset portfolio by life insurers.
  • Explain how options are used in both pension funding and asset/liability management.
  • Explain the use of derivatives to hedge short-term risks from the liability portfolio by property and casualty insurers.

Registering for Exam IFM

Registration for Exam IFM is typically via the SOA website though you can also get paper forms to fill.

The registration deadline is 6 weeks before the exam date. So you can check out the exam dates on the website (the exam is administered in the months of March, July, and November) and count back the six weeks to know when the registration is due.

After you hand in your details, you’ll receive an acknowledgment letter from the society – it is basically an indication that your application has been received. The most significant part of this letter is your candidate/eligibility number. But it won’t be of much use at this point since it will be inactive.

3 to 5 business days after receiving the acknowledgment letter, SOA will send you yet another letter – a letter of confirmation. This will mean that your candidate number has been activated – and therefore your application has been approved.

The next step is to book a space at the Prometric center in your locality and wait, or rather, prepare for the exam. To book a seat at a center follow the steps on

You can also do the same by making a telephone call to the Prometric’s Candidate Services Contact Center. Just make sure to reference your call as “SOA/CIA” exam. All the phone numbers you need are here.

Exam IFM has a slightly higher cost implication than the other two preliminary exams. It costs $375 payable through American Express, Master Card, and Visa.

Besides the registration process, you’d be safe to have an understanding of two other details:

  • Testing accommodations and
  • The rules and regulations.

Actuarial Exams – Complete Courses for Exams P & FM

SOA Testing Accommodations

Testing accommodations serve the purpose of giving everyone – regardless of any incapacitations – an equal chance at attempting the professional exams.

Most common testing accommodations include a braille version of the exam, use of voice recognition software, extended testing time and so on – granted they don’t give a candidate an unfair advantage over the others.

Check out everything you need to know about testing accommodations on this page.

Rules and Regulations

Of course, there has to be some kind of order – and rules are perfect for this.

The rules and regulations guide the activities of the Prometric center and any person present during an exam.

As a candidate, there are activities you’re expected to do and not to do on top of bringing with you items when you turn up for the exam – like the personal identification document you used to register and certain acceptable calculators.

All of these and more are laid down on this page.

Exam IFM Preparation

Preparing for Exam IFM doesn’t have to be one grueling experience – that’s if you’re part of our learning platform here at Analyst Prep.

You get guidance from people who were once in your situation. Besides that, you get a host of other benefits that make the preparation process bearable:

  • Up-to-date study materials
  • Both written and video notes
  • Full-time support and
  • Customizable quizzes and performance metrics.

Grading and Results

Exam IFM is grading is similar to that of Exams P and FM. In fact, all SOA exams follow the same grading system.

A scale of 0 to 10 is used to give the scores. Any score from 6 to 10 is regarded as a success and, therefore you can proceed (if you wish) with the next actuarial exam. Getting a score of 5 and below is a fail. And that means you’ll have to give it another shot.

Knowing what you scored takes time – usually 8-11 weeks after the date of the exam. The results will be available after this period via the Online Transcript Access on the Society’s website. Knowing whether you’ve passed or failed calls for another week of patience after which the passing candidates’ names will be availed through the exam results page.

Ready to Jump in?

Here’s the very vital information you need about Exam IFM. If you’ve been feeling lost, this a clear road map for you. Ready to go all-in?

No problem. Just remember to let Analyst Prep hold your hand when polishing up on those investment concepts. You’ll thank yourself for that.

Actuarial Exams – Complete Courses for Exams P & FM