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CF required to provide a given rate of return

5.        You have been offered a

5-year investment at a price of $75,000.  It will pay $8,000 at the end of Year 1, $12,000 at the end of Year 2, and a fixed but currently unspecified cash flow, X, at the end of Years 3 through 5. The payer is essentially riskless, so you are sure the payments will be made, and you regard 3.5% as an appropriate rate of return on riskless 5-year investments. What cash flow must the investment provide at the end of each of the final 3 years, that is, what is X?

 

a.  $18,689.47

b.  $20,012.73

c.  $20,713.18

d.  $21,438.14

e.  $21,895.25

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