1. Is this statement true or false? Assuming an interest rate greater than zero, an annuity due should always have a higher future value than an ordinary annuity.

a. True

b. False

2. Which of the following statements is TRUE?

a. Time lines typically show dollars above the line and years below the line.

b. Time lines always deal in years; no other periods are permitted.

c. Time lines can be set up to show cash flows that occur annually, quarterly, monthly, or in any other time unit.

d. Time lines must have a cash flow for each and every period. If no cash flow occurs during a given period, then a time line cannot be used to depict this situation.

e. The PV as shown on a time line is always the cash flow at Time = 1.

3. Is this statement true or false? A rational person should choose to receive cash flows from an annuity due of $1,000 per year rather than from a similar ordinary annuity.

a. True

b. False

4. A certificate of deposit has a cost of $2,000, three years to maturity, no cash flows until maturity, and an interest rate of 5%. Which of these time lines is correct?

a.

b.

5. A lender should prefer to lend at a rate of 10% with semiannual compounding, but a borrower would prefer a loan with a rate of 10%, annual compounding.

a. True

b. False