You Are in Negotiations to Make a 7-Year Loan of $25

question 130

Multiple Choice

You are in negotiations to make a 7-year loan of $25, 000 to DeVille Corporation.To repay you, DeVille 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.You are confident the payments will be made, since DeVille is essentially riskless.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:

Transgressions

Acts that go against a law, rule, or code of conduct; an offense.

Autobiographical Memory

A type of memory system consisting of episodes recollected from an individual's life, based on a combination of episodic (personal experiences and specific objects, people, and events experienced at particular time and place) and semantic (general knowledge and facts about the world) memory.

Specific Questions

Queries designed to elicit particular pieces of information, often narrow in focus and precise in nature.

Locomotion

The ability to move from one place to another using bodily movements, common in animals and humans.