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

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390 NATURE OF CAPITAL AND INCOME all his buying and selling in two equal amounts and at semi annual intervals, the ratio of his annual income to his capital, reckoned at these times, is ¢'. In the same manner it may be shown that if his buying and selling take place at quarterly intervals, the ratio of his income to his capital reckoned at these times will be i'!, i.e. the rate of interest per annum reckoned quarterly ; and so on indefinitely until we reach the limiting case, approximately true in practice, in which the merchant buys and sells daily, when we find that the annual net income, divided by the value of the capital at any instant, is equal to the rate of interest reckoned continuously. It will be observed that to make this proposition hold good it is necessary that the valuation of the merchant’s capital shall be, not its wholesale price nor its retail price, but something inter- mediate, which shall take account of the fact that the stock cannot all be sold immediately, and that, on the other hand, it will not be necessary to wait a year before it is all sold. Similar reasoning may evidently be applied in case the time of turn- over of the stock is more or less than a year. § 15 (ro Cn. XIII, § 11) Influence of Variability of Rate of Interest Thus far we have treated the rate of interest in successive years as invariable. As a matter of fact, the rate of interest is constantly fluctuating. We shall suppose at first that these fluctuations are foreknown, and for convenience we shall confine ourselves to a year as the standard interval of time. Let us assume that the rate of interest for the first year is 7,, for the second year, i, for the third year, i, and so on indefinitely, all of these being supposed to be known in advance. By means of these rates of interest we can calculate the present value of any item or series of items of income. Thus, if $1000 is due in two years and the rate of interest for the first year (4) is 5%, while the rate for the second year (iy) is 3%, we can obtain the present value of the $1000 by discounting it at 3% for one year, thus obtaining wo or $970.87, as its value a

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