A graduating CE is going to make $35,000/yr with Granite Construction. A total of 10% of the CE salary will be placed in the mutual fund of their choice. The CE can count on a 3% salary increase with the standard of living increases for the next 30 years of employment. If the CE is aggressive and places their retirement in a stock index fund that will average 10% over the course of their career, what can the CE expect at retirement?

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Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.