"We pay you $18,000 a year for 25 years and thereafter you will pay us $18,000 a year

forever!" - reads the Highlander (who lives forever) in an ad. What must be the rate of

interest (EAR) in order for this to be a fair deal, (i.e. the rate of interest that makes the

present value of these two series of cash flows equal). Assume that all payments occur at

the end of the year, so the Highlander receives the first payment at the end of year one

and he makes his first payment at the end of year 26.

A) No such interest rate exists

B) 0%

C) 2.81%

D) 3.18%

E) 3.36%