Question
3.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,
3.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?
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