Adjusting future values for inflation
You can now put together what you learned in the previous exercises by following a simple methodology:
- First, forecast the future value of an investment given a rate of return
- Second, discount the future value of the investment by a projected inflation rate
The methodology above will use both the .fv() and .pv() functions to arrive at the projected value of a given investment in today's dollars, adjusted for inflation.
This exercise is part of the course
Introduction to Financial Concepts in Python
Exercise instructions
- Calculate the future value of a $10,000 investment returning 8% per year for 10 years using
.fv()and assign it toinvestment_1. - Calculate the inflation-adjusted present value of
investment_1, using an inflation rate of 3% per year and assign it toinvestment_1_discounted.
Hands-on interactive exercise
Have a go at this exercise by completing this sample code.
import numpy as np
# Calculate investment_1
investment_1 = ____(rate=____, nper=____, pmt=0, pv=____)
print("Investment 1 will yield a total of $" + str(round(investment_1, 2)) + " in 10 years")
# Calculate investment_2
investment_1_discounted = ____(rate=____, nper=____, pmt=____, fv=____)
print("After adjusting for inflation, investment 1 is worth $" + str(round(-investment_1_discounted, 2)) + " in today's dollars")