Cover by Philipp K. Janert

Safari, the world’s most comprehensive technology and business learning platform.

Find the exact information you need to solve a problem on the fly, or go deeper to master the technologies and skills you need to succeed

Start Free Trial

No credit card required

O'Reilly logo

Chapter 17. Financial Calculations and Modeling

I RECENTLY RECEIVED A NOTICE FROM A MAGAZINE REMINDING ME THAT MY SUBSCRIPTION WAS RUNNING OUT. It’s a relatively expensive weekly magazine, and they offered me three different plans to renew my subscription: one year (52 issues) for $130, two years for $220, or three years for $275. Table 17-1 summarizes these options and also shows the respective cost per issue.

Table 17-1. Pricing plans for a magazine subscription

Subscription

Total price

Price per issue

Single issue

n/a

6.00

1 year

130

2.50

2 years

220

2.12

3 years

275

1.76

Assuming that I want to continue the subscription, which of these three options makes the most sense? From Table 17-1, we can see that each issue of the magazine becomes cheaper as I commit myself to a longer subscription period, but is this a good deal? In fact, what does it mean for a proposal like this to be a “good deal”? Somehow, stomping up nearly three hundred dollars right now seems like a stretch, even if I remind myself that it saves me more than half the price on each issue.

This little story demonstrates the central topic of this chapter: the time value of money, which expresses the notion that a hundred dollars today are worth more than a hundred dollars a year from now. In this chapter, I shall introduce some standard concepts and calculational tools that are required whenever we need to make a choice between different investment decisions—whether they involve our own personal finances or the evaluation of business ...

Find the exact information you need to solve a problem on the fly, or go deeper to master the technologies and skills you need to succeed

Start Free Trial

No credit card required