The nature of capital and income

Bibliographic data

Monograph

Identifikator:: 102659555X

URN:: urn:nbn:de:zbw-retromon-82920

Document type:: Monograph

Author:: Fisher, Irving http://d-nb.info/gnd/118533541

Title:: The nature of capital and income

Place of publication:: New York

Publisher:: The Macmillan Company

Year of publication:: 1923

Scope:: XXI, 427 Seiten

Digitisation:: 2019

Collection:: Economics Books

Usage license:: Get license information via the feedback formular.

Chapter

Document type:: Monograph

Structure type:: Chapter

Title:: Part III. Capital and income

Collection:: Economics Books

192 NATURE OF CAPITAL AND INCOME [Cmar. XII & his capital, whereas in England he can get but $30,000, and will, therefore, be just half as wealthy in actual income. §2 The rate of interest has many meanings, and since the concept is so vital to our study, we shall specify carefully, in the present chapter, what these various meanings are. The meaning implied in the previous section postulates the existence of a perpetual annuity, v.e. a uniform and per- petual flow of income. Although such an annuity does not actually exist, it is often convenient to employ it as a vehicle of thought. Suppose $10,000 to-day will secure a perpetual annuity of $400 per year payable annually, the first payment accruing one year from the day of pur- chase; then the rate of interest is said to be four per cent per annum payable annually; that is, the rate of interest (when the interest is payable annually) is the ratio between the rate of flow of a perpetual annuity and its equivalent in present capital. In case the income accrues semi-annually the case is slightly different. Let $10,000 to-day yield a perpetual an- nuity of $400 a year in semi-annual payments of $200 each, the first payment being due six months from date. Then the rate of interest is said to be four per cent per annum payable semi-annually. That these four-per-cent rates are not equivalent to each other is well recognized in practice, and can be made evident in various ways. The holder of the semi-annual annuity has a slight advantage over the holder of the annual annuity, because he receives half of each year’s income six months earlier. He may, in fact, convert his income of $200 twice a year into an income of $404 once a year; for in six months, besides receiving his first installment of $200, he may receive $10,000, by selling his annuity. He may then reinvest the entire $10,200 on the original terms, 4 per cent payable semi-annually, and hence obtain a per-

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