Question
Victor is negotiating to make a 10-year loan of $85,000 to Walter Inc. To repay you, Walter Inc. will pay $5,000 at the end of
Victor is negotiating to make a 10-year loan of $85,000 to Walter Inc. To repay you, Walter Inc. will pay $5,000 at the end of Year 1, $10,000 at the end of Year 2, and $15,000 at the end of Year 3, and $20,000 at the end of Year 4, $25,000 at the end of Year 5, plus a fixed but currently unspecified cash flow, X, at the end of each year from Year 6 through Year 10. Walter Inc.is essentially riskless, so you are confident the payments will be made. You regard 10% as an appropriate rate of return on a low risk but illiquid 10-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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