Time for action – determining the future value

The future value gives the value of a financial instrument at a future date, based on certain assumptions. The future value depends on four parameters—the interest rate, the number of periods, a periodic payment, and the present value.

Note

Read more about future value at http://en.wikipedia.org/wiki/Future_value. The formula for future value with compound interest is as follows:

In the preceding formula, PV is the present value, r is the interest rate, and n is the number of periods.

In this section, let's take an interest rate of 3 percent, a quarterly payment of 10 for 5 years, and a present value of 1000. Call the fv() function with the appropriate values (negative values represent outgoing cash flow):

print("Future value", np.fv(0.03/4, 5 * 4, -10, -1000))

The future value is as follows:

Future value 1376.09633204

If we vary the number of years we save and keep the other parameters constant, we get the following plot...