Answer:
The options:
A) $3,757
B) $3,039
C) $5,801
D) $3,345
The CORRECT ANSWER IS B)
B) $3,039
Explanation:
Given,
Parents deposit (d) = $5,000
Interest rate (I) = 6%
Number of years of maturity (n) = 3 years
First, let's determine what the The Value of parents deposit in 3 years time will be;
Using,
Value = d × ( 1 + I)^n
The Value of parents deposit in 3 years time will be
= $5,000 × (1 + 0.06)^3
= $5,000 × 1.191016
= $5,955.08
Next,
let's estimate for Money short of travel cost at T3;
Using
Money short of travel cost at T3 = Total expected cost of trip - The Value of parents deposit in 3 years time
Where,
Total expected cost of trip = $10,000
The Value of parents deposit in 3 years time = $5,955.08
Money short of travel cost at T3 = ?
Therefore,
T3 = $(10000 - 5955)
T3 = $4044.92
Hence,
Money to be deposied at T0 to make up this shortfall = ?
Let's recall,
Uncle Lee's gift in an investment earning (I) = 10%
Number of years = three (3) years
Money short of travel cost at T3 = $4044.92
We will use the formula,
Money short of travel cost at T3
___________________________
( 1 + I)^n
To find the Money to be deposied at T0 to make up this shortfall
$4044.92
= __________
(1 + 0.10)^3
$4044.92
= __________
1.331
= $3,039.00826 (approximately $3,039)
The CORRECT ANSWER IS B)
