Sec. 18] THE RISK ELEMENT 287

only a slight elevation — enough to represent the commercial
value of the uncertain dividend. Then when the amount
of the dividend is known, just before it is distributed, the
stock (including the right to the impending dividend)
will suddenly jump in value. After the dividend is paid,
it will again descend and then increase slowly in value until
the approach of the next dividend. This will explain the
fact which has sometimes been observed, that the value
of a dividend-paying stock often remains fairly constant.
Normally its course will be somewhat as in Figure 12.
The capital-value increases only slowly from 4 to B, when,
with the declaration of a dividend, it immediately jumps
to C, and with the distribution of the dividend at D

oO
oO
©

H

  

Yh er ee

Fic. 12.

descends to E, and so on indefinitely. If we omit the
fluctuations between the declarations of dividends and the
distributions, the course of the stock remains relatively
horizontal, as represented by 4B, EF, 1J.

§ 14

The introduction of the element of chance does not greatly
affect bookkeeping except to impair somewhat the correspondence
 between capital accounts and income accounts.
This is occasioned by mere changes in the size of the
capital items. When revision of capital-value 1s due to a
new estimate of future income, as after a fire, shipwreck,
or other calamity, the immediate result is merely to reduce
(or, it may be, to increase) the value of the assets. The
accountant must “write down” (or up) the assets, and