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?

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