1. You plan to go to Asia to visit friends in three years. The trip is expected
ID: 2640849 • Letter: 1
Question
1. You plan to go to Asia to visit friends in three years. The trip is expected to cost a total of $10,000 at that time. Your parents have deposited $5,000 for you in a Certificate of Deposit paying 6% interest annually,maturing three years from now. Uncle Lee has agreed to pay for all remaining expenses. If you are going to put Uncle Lee's gift in an investment earning 10% over the next three years, how much must he deposit today, so you can visit your friends three years from today?
A.$3,039
B. $3,345
C. $5,801
D.$3,757
Explanation / Answer
Value of parents deposit after 3 years = 5000 * (1 + .06)^3 = 5955
Money short of travel cost at T3 = 10000 - 5955 = 4045
Money to be deposied at T0 to mae up this shortfall = 4045 / (1 + .10)^3 = 3039
Correct option:
A.$3,039
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