Question

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?

Answer 1

Aunt Hilda must give him $3,039

Step-by-step 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