Understanding Present and Future Value

The video tutorial revisits the concept of future value, explaining it as the worth of regular installments with interest over time. It then connects this to present value, which is the amount needed now to achieve a future sum. The tutorial compares present and future value tables, highlighting differences in interest rates and calculations. It concludes with a detailed explanation of interest calculations and the importance of understanding present value in financial planning.

What is the primary goal of calculating future value?

• To determine the current worth of an investment

• To calculate the depreciation of an asset

• To estimate the value of an investment at a future date

• To find the interest rate of a loan

How does the graph help in understanding future value?

• It highlights the risks of investments

• It compares different interest rates

• It shows the depreciation of assets over time

• It illustrates the process of accumulating value through installments and interest

What does present value represent?

• The depreciation rate of an asset

• The interest rate required for an investment

• The amount needed now to achieve a future sum

• The future worth of an investment

Why are numbers in the present value table smaller than those in the future value table?

• Because present value represents a future sum

• Because present value accounts for depreciation

• Because present value is calculated without additional installments

• Because present value reflects the initial amount needed to reach a future sum

What is the significance of the numbers being less than one in the present value table?

• They indicate a loss in value over time

• They reflect the depreciation rate

• They represent the interest rate

• They show the initial amount needed to reach a future value

How is present value calculated in relation to interest?

• By subtracting interest from the future value

• By dividing the future value by the interest rate

• By adding interest to the current value

• By determining the initial amount needed to grow to a future value with interest

What happens to the initial amount when it earns interest over time?

• It is divided by the interest rate

• It decreases in value

• It remains the same

• It grows to match the future value

Why is it important to understand the difference between present and future value tables?

• To choose the best investment strategy

• To understand the impact of interest on investments

• To calculate depreciation rates

• To determine the best time to sell an asset

What is the role of interest in present value calculations?

• It decreases the initial amount

• It increases the future value

• It is irrelevant to present value calculations

• It helps determine the initial amount needed to reach a future value

How does the timing of installments affect the future value?

• Installments have no effect on future value

• Installments at the end of the year decrease future value

• Installments at the start of the year increase future value

• Installments at the end of the year do not earn interest immediately