Encyklopädie der Rechtswissenschaft: Encyklopädie der Rechtswissenschaft

Handbuch der vergleichenden Statistik- der Völkerzustands- und Staatenkunde

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Multivolume work

Identifikator:: 1896404200

Document type:: Multivolume work

Title:: Encyklopädie der Rechtswissenschaft

Place of publication:: Leipzig

Publisher:: Duncker & Humblot [u.a.]

Year of publication:: 1904-

Collection:: Economics Books

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Volume

Identifikator:: 1896404219

URN:: urn:nbn:de:zbw-retromon-236878

Document type:: Volume

Title:: Encyklopädie der Rechtswissenschaft

Volume count:: Bd. 1

Place of publication:: Leipzig

Publisher:: Duncker & Humblot [u.a.]

Year of publication:: 1904

Scope:: 1114 S.

Digitisation:: 2022

Collection:: Economics Books

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Sec. 11] THE RISK ELEMENT 283 Any further attempt to apply the theory of probability would therefore outrun the exigencies of practice." § 11 The practical investor, in order to estimate the influence of probability, attempts to forecast as nearly as possible all the elements which may affect his interests. An example occurs in the Engineering and Mining Journal for Decem- ber 8, 1904. It is there stated that the mine at Cananea, belonging to the Green Consolidated Copper Company, was worth, according to quotations at that time, $30,000,000. This valuation the journal shows might be justified if we suppose the mine to contain a total of 1,040,000,000 pounds of copper which can be mined at the rate of 104,000,000 a year for 10 years, and if we suppose that the price of cop- per will be 14 cents, and the cost of production 8 cents, to which should be added the expense of refining, selling, com- mission, etc., making 2} cents more, or 104 cents in all. If we make allowance for future economies, this may be called 10 cents, leaving a net profit of 4 cents a pound. On this basis we should obtain a 10-year annuity of $4,160,000 per annum, the present value of which, at 5 per cent, would be $32,000,000. But inasmuch as these forecasts involve great uncertainty, a fair price would be regarded as $30,- 000,000, the discrepancy between $30,000,000 and $32,000,- 000 being due to the element of risk, i.e. the combined in- fluence of probability and caution. This price represents a basis of 6} per cent.’ 1 Nevertheless it is more than conceivable that the time may come will make use of probability computations in the same way that they now make use of bond tables. The writer’s colleague, Professor Norton, has shown this possibility. For a brief statement, see Appendix to Chap. XVI, § 3. : ? For such properties as mines which rapidly depreciate, brokers often reckon the “basis” in a somewhat different manner, computing the percentage realized to the investor on the supposition that he employs a depreciation fund and reinvests, not at the 6} per cent just when practical brokers

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