FIN 540 Solutions

                                       Answer

1. B. A time line is meaningful even if all cash flows do not occur annually.

2. A. The discount rate decreases

3. B. The cash flows for an ordinary (or deferred) annuity all occur at the beginning of

the periods.

1. periodic rate of interest is % and the effective rate of interest is greater than 5%

2. D. The proportion of each payment that represents interest as opposed to repayment of principal would be lower if the interest rate were lower.