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
