you want to travel to Europe to visit relatives when you graduate from college t

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 at that time. 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% over the next three years, how much must she deposit now, so you can visit your relatives at the end of three years

Explanation / Answer

parents deposit 3 years from now will be= 5000x1.06^3= $5955.08 Therefore Aunt hilda's gift 3 years from now will be 10000-5955.08= $4044.92 Therefore Aunt Hilda must have given 3 years before or she would deposit now = (40044.92/1.1^3)= $3039.008 or rounding will give $3040

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