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

Sec. 8] VALUE OF CAPITAL 217 the bond is reinvested, it may be that it is not equal to the original investment, nor, therefore, to the capital-value of the bond at any time before maturity. This equality would hold true-only in case the bond is always kept at par. When it is worth more or less than par the capital- value is more or less than the “principal,” and for this reason, if for no other, the capital-value should not be confounded with the ““ principal.” In order to determine whether or not a nominally five per cent bond really yields five per cent, we must refer to the price at which it sells, and while there is no neces- sity to abandon the terminology by which “principal” and “interest’’ are used with reference to bonds, these terms are undoubtedly misnomers and their existence is responsible for considerable confusion. For instance, insurance companies have recently been offering their policy holders an option between the receipt at the death of the insured of a definite insurance of $1300, or of a “five per cent gold bond” for $1000. The gold bond has seemed, to many policy holders, a tempting form of invest- ment because of the “high rate of interest,” — five per cent; but it is evident that such a bond, considered as the equiva- lent of $1300 in cash, is on a lower basis than five per cent. $8 Hitherto we have considered only four special cases of capitalizing income, viz. (1) the capital-value of a single income item; (2) the capital-value of a perpetual annuity ; (3) the capital-value of an annuity terminable in a definite number of years; and (4) the capital-value of a bond. But it is clear that the items of income from any property may oceur in many other forms, may last for any length of time, and may be distributed through this time in any manner whatever. Let us, therefore, consider the general case in which any random series of income items, AB, AB AB, Apr, are received, as shown in Figure 4. The capital-

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