Question1 You want to travel to Europe to visit relatives when you graduate from college three years from now DOC

Title	Question1 You want to travel to Europe to visit relatives when you graduate from college three years from now
Author	Chenxi Liu
Pages	1
File Size	54 KB
File Type	DOC
Total Downloads	807
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Question1 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? Due to Aunt Hilda required finance balance, so the trip future expenditure $10,000 should be the same with equivalent deposit sum, because the parents deposited $5,000 at the end of the period depicted on maturing threes years. The end of one period is the same as the beginning of the next period, so FV(cash outflow) =PV(cash inflow); According to the future value formulation, , so, $10,000 = $5,000*(1+6%)3 +FV1 FV1= $4,044.92 The future value of parents deposition is required to $4,044.92 Future value is the amount to which a current deposit are going to increase over a constant period of time while paying compound interest. As the question mentioned, I am going to put Aunt Hilida's gift in an investment earning 10% over the next three years, which means in three years my investment annually interest rate of return will arrive at 10% so I should know the amount of the present value of requirement deposition. Based on the formulation, PV= $4,044.92/ (1+10%)3 = $3,924.96 So $ 3,924.96 she should be deposited now that I can visit her at the end of three years. Question 2...