8 FOREST VALUATION 



period, and the less capital a man has the greater is his prefer- 

 ence for its immediate use. This preference can be satisfied 

 by borrowing. The borrower obtains the benefits he seeks 

 immediately, but the lender is forced to wait until the capital 

 is returned before enjoying it. For this gain in " time value," 

 the borrower pays interest. Upon money loans interest is 

 repaid in money, the amount paid bearing a definite relation 

 to the amount borrowed and to the length of time elapsing 

 before repayment. Since interest and principal are in the same 

 commodity, money, the relative amount and value of the interest 

 can be expressed as a per cent of the principal. This per cent 

 gives the rate of interest paid or earned. The period for which this 

 rate is customarily quoted is one year. If the period intended 

 is less than a year the fact must be clearly stated. High rates 

 of interest may be based on the month, in order to make the 

 rate sound less exorbitant. 



Interest, therefore, is the price of time differences or the stand- 

 ard by which the value of immediate possession and enjoyment 

 of income can be determined, when compared with the value of 

 the same income if its receipt is postponed to a future period. 



15. Discount. All future values can be standardized by 

 reducing them to their equivalent present value by means of 

 a given rate of interest. This process of reduction is termed 

 discount. The discounting of money loans or demand notes 

 consists of receiving in advance the value of a sum receivable 

 in the future, less the difference in value due to the time elapsing 

 before this payment is due. In the same way the present value 

 of all forms of property is derived by consciously or uncon- 

 sciously discounting its future value which takes the form of 

 future income. The process of discounting is therefore the most 

 important element in the valuation of forest property. 



16. Compound Interest and Discount. Interest upon money 

 loans is due and payable either annually or at shorter intervals. 

 When received it may be added to the principal at the discretion 

 of the owner. It may then be loaned and will in turn earn 

 interest. At the end of each period of payment, provided no 

 capital has been withdrawn, and interest has been promptly 



