Added an algorithm to calculate the present value of cash flows

financial/present_value.py

@@ -0,0 +1,44 @@
+# Reference: https://www.investopedia.com/terms/p/presentvalue.asp
+
+# Algorithm that calculates the present value of a stream of yearly cash flows given...
+# 1. The discount rate (as a decimal, not a percent)
+# 2. An array of cash flows, with the index of the cash flow being the associated year
+
+# Note: This algorithm assumes that cash flows are paid at the end of the specified year
+
+
+def present_value(discount_rate: float, cash_flows: list[float]) -> float:
+    """
+    >>> present_value(0.13, [10, 20.70, -293, 297])
+    4.69
+    >>> present_value(0.07, [-109129.39, 30923.23, 15098.93, 29734,39])
+    -42739.63
+    >>> present_value(0.07, [109129.39, 30923.23, 15098.93, 29734,39])
+    175519.15
+    >>> present_value(-1, [109129.39, 30923.23, 15098.93, 29734,39])
+    Traceback (most recent call last):
+        ...
+    ValueError: Discount rate cannot be negative
+    >>> present_value(0.03, [])
+    Traceback (most recent call last):
+        ...
+    ValueError: Cash flows list cannot be empty
+    """
+
+    if discount_rate < 0:
+        raise ValueError("Discount rate cannot be negative")
+
+    if not cash_flows:
+        raise ValueError("Cash flows list cannot be empty")
+
+    present_value = sum(
+        cash_flow / ((1 + discount_rate) ** i) for i, cash_flow in enumerate(cash_flows)
+    )
+
+    return round(present_value, ndigits=2)
+
+
+if __name__ == "__main__":
+    import doctest
+
+    doctest.testmod()