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Finance and Accounting on Cooperate Finance - Math Problem Example
Author : fisherrose
Finance & Accounting
Pages 4 (1004 words)
Question #1 The total cost of the trip is $10,000. However in order to have the total amount for the trip; there are two ways to accumulate the amount; contribution from the parents and gift from Aunt Hilda. The contribution of the parents would be $5,000…
Contribution from the parents would be invested at 6% annually for a period of 3 years. However the remaining amount will be raised from Aunt Hilda’s gift. So, at the moment, the future value of the contribution from the parents would be calculated and then this future value from the parents would be deducted from $10,000 to find the future value of the amount that would be raised from the Aunt Hilda. Once this amount is identified, the present value of Aunt Hilda gift will be calculated to identify the amount required from her. Parents would contribute $5,000 and that will be invested for 3 years at 6%. Therefore the future value of $5000 after 3 years would be FV = $5000 (1+ 6%) ^ 3 FV = 5,955 As the total value after 3 years required would be $10,000. So, after three years amount required for the trip except from the contribution of the parents would be $10,000 - $5,955 = $4045 $4,045 would be the amount that would be needed after 3 years. So, this is the future value of the gift of Aunt Hilda. As this amount would be invested for three years at 10% therefore the present value of this amount would be: PV = 4,045 / (1 + 10%) ^ 3 PV = $3,039 Therefore, $3,039 would be taken from Aunt Hilda as gift. ...