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

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