2 g FOREST VALUATION 



ines himself as wealthy as before even if he spends the entire 

 income from his investment. 



47. The Rate of Interest for Business Investments. The 

 rate of interest for a business is the rate at which money will 

 seek investment in the enterprise. It is a question whether 

 or not this basic rate should include an enterpriser's profit. 

 The rate which the lender of capital will accept on the security 

 of the business, or what the proprietor can obtain as the basis 

 for a loan, is a conception tallying rather more closely with actual 

 conditions. Such a rate may be said to attract capital, but it 

 may not attract the enterpriser, who hopes to do better. The 

 "rate" adopted as the standard for an investment becomes 

 the basis for computing both the cost of production ( 25) and 

 the value of the assets (Chapter IV) . 



48. The Effect of Deferred Income upon the Rate of Interest. 

 A mathematical comparison of simple and compound interest 

 leads to the conclusion that, since the latter, as applied to de- 

 ferred returns, is the exact equivalent of the former when returns 

 are annual, a given basic rate should be the same whether the 

 investment pays annual or deferred income. 



But under the definition that the "rate of interest" means 

 the rate which will attract money to a business, the above 

 conclusion must be tested by the "price making" factors 

 which influence the minds of investors. Should these factors 

 be found to differ for investments of the two classes, the basic 

 rate of interest applicable to each case will differ to a corre- 

 sponding degree. 



49. Comparison of Results of Simple and Compound Interest. 

 - The economic results obtained in actual practice from an 



undertaking which produces simple or annual interest are not 

 the same as those obtained by compound interest, however 

 similar may be their mathematical relation. 



To make the returns from a business which starts with a 

 definite amount of capital, and earns annual net profits at x 

 per cent, equal to those from the investment of a similar sum 

 which will produce compound interest after a term of years at 

 the same rate, x per cent, requires several assumptions. The 



