Future Value and Present Value Concepts

The video tutorial explains how to calculate the future and present values of a continuous cash flow using a scenario where an individual receives a promotion at age 28 with a salary of $80,000 per year and plans to retire at 62. The tutorial covers determining the number of working years, setting up integration limits, and using a calculator to find the future and present values with a 2% continuous interest rate. The future value represents the total amount accumulated by retirement, while the present value indicates the one-time deposit needed today to achieve the same future balance.

What is the annual salary for the VP of Marketing position?

• $70,000

• $80,000

• $90,000

• $100,000

What is the continuous interest rate assumed in the scenario?

• 4%

• 2%

• 3%

• 1%

How many years will you work from age 28 to 62?

• 32 years

• 36 years

• 30 years

• 34 years

What is the integral used to calculate the future value of the continuous cash flow?

• Integral from 0 to 34 of 80,000 e^(-0.03t) dt

• Integral from 0 to 34 of 80,000 e^(0.03t) dt

• Integral from 0 to 34 of 80,000 e^(-0.02t) dt

• Integral from 0 to 34 of 80,000 e^(0.02t) dt

What is the future value of the continuous cash flow at retirement?

• $4,000,000.00

• $3,000,000.00

• $3,895,510.93

• $4,500,000.00

What does the future value represent in this scenario?

• The total expenses over 34 years

• The amount saved after expenses

• The investment value at retirement with 2% interest

• The total salary earned over 34 years

What is the integral used to calculate the present value of the continuous cash flow?

• Integral from 0 to 34 of 80,000 e^(-0.03t) dt

• Integral from 0 to 34 of 80,000 e^(0.02t) dt

• Integral from 0 to 34 of 80,000 e^(-0.02t) dt

• Integral from 0 to 34 of 80,000 e^(0.03t) dt

What is the present value of the continuous cash flow?

• $2,000,000.00

• $2,500,000.00

• $1,973,532.03

• $1,500,000.00

What does the present value represent in this scenario?

• The total expenses over 34 years

• The investment value at retirement with 2% interest

• The amount needed today to match future value at retirement

• The total salary earned over 34 years

What is the purpose of changing the exponent to -0.02t in the present value calculation?

• To increase the interest rate

• To discount future cash flows to present value

• To calculate the future value

• To account for inflation