Book Image

Python for Finance

By : Yuxing Yan
Book Image

Python for Finance

By: Yuxing Yan

Overview of this book

Table of Contents (20 chapters)
Python for Finance
About the Author
About the Reviewers

Choosing meaningful names

A perpetuity describes the situations where equivalent periodic cash flows happen in the future and last forever. For example, we receive $5 at the end of each year forever. A real-world example is the UK government bond, called consol, that pays fixed coupons. To estimate the present value of a perpetuity, we use the following formula if the first cash flow occurs at the end of the first period:

Here, PV is the present value, C is a perpetual periodic cash flow that happens at a fixed interval, and R is the periodic discount rate. Here C and R should be consistent. For example, if C is annual (monthly) cash flow, then R must be an annual (monthly) discount rate. This is true for other frequencies too. Assume that a constant annual cash flow is $10, with the first cash flow at the end of the first year, and that the annual discount rate is 10 percent. Compare the following two ways to name the C and R variables:

>>>x=10       # bad way for variable names...