220 NATURE OF CAPITAL AND INCOME [Cmar. XIII

is exactly equal to the discounted value of the succeeding
income, it is evident that the value immediately before its
purchase must be exactly zero. Thus in Figure 6 let OM
be the purchase price, and equal to OA, which is the capitalvalue
 immediately after purchase. The capital-value
immediately before purchase is, therefore, zero, and the
entire capital curve is the line OABCDEFH, which starts

B

 

 

 

 

M
Fic. 6.
at zero and ends at zero, but is above the zero line at all
intermediate intervals. This represents the normal history
 of any capital instrument if bought at a “ fair
price.”
If the flow of income is continuous, we may obtain the
capital-value approximately by dividing the continuous