By purchasing a house, you would gain $7,047.04 (53,095.65 – 46,048.61)
over an alternate investment at 3% interest.
Sometimes transactions are established where payments do not begin for a
specified number of periods; the payments are deferred. The technique for
calculating NPV may be applied assuming zero for the first cash flow. Refer to
pages 73 through 77.
Example 1: You have just inherited $20,000 and wish to put some of it aside for
your daughter's college education. You estimate that when she is of college age, 9
years from now, she will need $7,000 at the beginning of each year for 4 years
for college tuition and expenses. You wish to establish a fund which earns 6%
annually. How much do you need to deposit in the fund today to meet your
daughter's educational expenses ?
Section 12: Real Estate and Lending
Balance in savings.
First cash flow.
Second through ninth
Tenth through thirteenth