Free SOA Exam FAM (Fundamentals of Actuarial Mathematics) Option Pricing Fundamentals Practice Questions
Financial derivatives on SOA Exam FAM cover put-call parity, the binomial option pricing model, the Black-Scholes formula, and the Greeks (delta, gamma, theta, vega), connecting financial mathematics to actuarial applications.
62 questions28 easy24 medium10 hard2026 syllabus
Sample Questions
Question 1
Easy
A European put has strike $70 and stock at expiration is $63. What is the payoff?
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Correct Answer: B
Solution
B is correct.
Payoff =max(70−63,0)=7. The answer is $7.
Question 2
Medium
Using put-call parity, a synthetic long stock position can be created by:
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Correct Answer: B
Solution
B is correct.
From put-call parity: S = C - P + PV(K). A synthetic long stock position is created by buying a call and selling a put with the same strike and expiry, plus lending PV(K).
Question 3
Hard
Two-period binomial model: S0=100, u=1.10, d=0.90, r=2% per period. European call with strike $100. Calculate the call price.
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Correct Answer: C
Solution
C is correct.
Using a two-period binomial model with S0=100, u=1.10, d=0.90, r=0.02 per period, K=100.
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