Present and future value

Introduction to Financial Concepts in Python

Dakota Wixom

Quantitative Finance Analyst

The non-static value of money

Situation 1

  • Option A: $100 in your pocket today
  • Option B: $100 in your pocket tomorrow

Situation 2

  • Option A: $10,000 dollars in your pocket today
  • Option B: $10,500 dollars in your pocket one year from now
Introduction to Financial Concepts in Python

Time is money

Your Options

  • A: Take the $10,000, stash it in the bank at 1% interest per year, risk free
  • B: Invest the $10,000 in the stock market and earn an average 8% per year
  • C: Wait 1 year, take the $10,500 instead
Introduction to Financial Concepts in Python

Comparing future values

  • A: 10,000 * (1 + 0.01) = 10,100 future dollars
  • B: 10,000 * (1 + 0.08) = 10,800 future dollars
  • C: 10,500 future dollars
Introduction to Financial Concepts in Python

Present value in Python

Calculate the present value of $100 received 3 years from now at a 1.0% inflation rate.

import numpy as np 
np.pv(rate=0.01, nper=3, pmt=0, fv=100)

-97.05
Introduction to Financial Concepts in Python

Future value in Python

Calculate the future value of $100 invested for 3 years at a 5.0% average annual rate of return.

import numpy as np
np.fv(rate=0.05, nper=3, pmt=0, pv=-100)

115.76
Introduction to Financial Concepts in Python

Let's practice!

Introduction to Financial Concepts in Python

Preparing Video For Download...