Present Value and Future Value Concepts

The video tutorial explains the concept of present value, contrasting it with future value. It describes how present value is used to determine the amount needed to invest today to achieve a desired future amount. The process of discounting is introduced, and the formula for calculating present value is provided. Two examples are given: one for purchasing a car in five years and another for buying a home in fifteen years, illustrating the application of the present value formula.

What is the main difference between future value and present value?

• Present value is the amount you will receive in the future, while future value is the amount you need to invest today.

• Present value is the amount you will receive in the future.

• Future value is the amount you need to invest today.

• Future value is the amount you will receive in the future, while present value is the amount you need to invest today.

What does the process of calculating present value involve?

• Deflating

• Inflating

• Discounting

• Compounding

In the context of present value, what does the 'i' in the formula represent?

• Interest rate

• Inflation rate

• Discount rate

• Growth rate

What is the purpose of using the present value method?

• To determine the amount to invest today for a future sum

• To calculate the amount needed in the future

• To find the interest rate for future investments

• To calculate the future value of an investment

What is the formula used to calculate present value?

• Future value multiplied by (1 + i)^n

• Future value divided by (1 + i)^n

• Present value multiplied by (1 + i)^n

• Present value divided by (1 + i)^n

What is the present value factor in the present value formula?

• (1 + i)^n

• Present value

• Future value

• Discount rate

What is the result of dividing the future value by the present value factor?

• Interest rate

• Present value

• Discount rate

• Future value

In the car purchase example, what is the future value?

• 12 lakhs

• 10 lakhs

• 7 lakhs

• 5 lakhs

What is the discount rate used in the car purchase example?

• 10%

• 5%

• 12%

• 7%

How much should you invest today to buy a car worth 10 lakhs in five years?

• 7,12,961

• 7,50,000

• 8,00,000

• 6,50,000