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

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