You want to travel to Europe to visit relatives when you graduate from college three years from now. The trip is expected to cost a total of $10,000. Your parents have deposited $5,000 for you in a CD paying 6% interest annually, maturing three years from now. Aunt Hilda has agreed to finance the balance. If you are going to put Aunt Hilda's gift in an investment earning 10% annually over the next three years, how much must she deposit now so you can visit your relatives in three years?

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Business

Corey Hines

3 May, 13:08

You want to travel to Europe to visit relatives when you graduate from college three years from now. The trip is expected to cost a total of $10,000. Your parents have deposited $5,000 for you in a CD paying 6% interest annually, maturing three years from now. Aunt Hilda has agreed to finance the balance. If you are going to put Aunt Hilda's gift in an investment earning 10% annually over the next three years, how much must she deposit now so you can visit your relatives in three years?

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Answers (1)

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Andres Middleton · Answer 1

Aunt Hilda must give him $3,039

Explanation:

Giving the following information:

The trip is expected to cost a total of $10,000. Your parents have deposited $5,000 for you in a CD paying 6% interest annually, maturing three years from now. Aunt Hilda has agreed to finance the balance. If you are going to put Aunt Hilda's gift in an investment earning 10% annually over the next three years.

First, we need to calculate the total amount of the parents investment.

FV = PV * (1+i) ^n = 5,000 * (1.06) ^3 = $5,955

Difference = 10,000 - 5,955 = 4,045

Aunt investment:

Final value = 4,045

PV = FV / (1+i) ^n = 4,045/1.10^3 = 3,039

Aunt Hilda must give him $3,039