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14: Additional Examples 203
File name : English-M02-1-040308(Print).doc Print data : 2004/3/9
Suppose you want to start saving now to accommodate a future series of
cash outflows. An example of this is saving money for college. To
determine how much you need to save each period, you must know
when you’ll need the money, how much you’ll need, and at what interest
rate you can invest your deposits.
Use a CFLO list to calculate the net uniform series (
NUS) of the future
withdrawals:
1. Store zero for all cash flows except the withdrawals. For those cash
flows, store the amounts you will need to withdraw (since this is cash
received, these cash flows will be
positive).
2. Store the periodic interest rate in
I% and calculate NUS. The NUS
equals the amount of the monthly deposit you will need to make.
You can also calculate the equivalent present value of all the monthly
deposits combined by calculating the net present value,
NPV.
Example: Savings for College. Your daughter will be going to college
in 12 years and you are starting a fund for her education. She will need
$15,000 at the beginning of each year for four years. The fund earns
9% annually, compounded monthly, and you plan to make monthly
deposits, starting at the end of the current month. How much should you
deposit each month to meet her educational expenses?
The cash-flow diagram looks like this: