You Are Negotiating to Make a 7-Year Loan of $25,000

question 145

Multiple Choice

You are negotiating to make a 7-year loan of $25,000 to Breck Inc.To repay you,Breck will pay $2,500 at the end of Year 1,$5,000 at the end of Year 2,and $7,500 at the end of Year 3,plus a fixed but currently unspecified cash flow,X,at the end of each year from Year 4 through Year 7.Breck is essentially riskless,so you are confident the payments will be made.You regard 8% as an appropriate rate of return on a low risk but illiquid 7-year loan.What cash flow must the investment provide at the end of each of the final 4 years,that is,what is X?

• A)$4,271.67
• B)$4,496.49
• C)$4,733.15
• D)$4,969.81
• E)$5,218.30

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Definitions:

Rejection Region

The interval of data points that necessitate the null hypothesis's rejection within hypothesis testing.

Alternative Hypothesis

A statement that indicates there is a statistically significant difference between two or more sets of data.

One-Sided Hypothesis

A one-sided hypothesis test, also known as a directional hypothesis, tests the possibility of a relationship in a specific direction.

Null Hypothesis

A default hypothesis that there is no significant difference or effect, often tested against an alternative hypothesis in statistical analysis.