3 o FOREST VALUATION 



will compound interest fall to a lower rate, but annual profits 

 will be reduced as well. This explains the fact, accepted by 

 economists, that the larger the aggregation of capital employed 

 in an undertaking, the smaller will be the annual rate of profits 

 which justifies the investment. 



The conclusion is irresistible, that the mathematical equality 

 between simple and compound returns does not hold good. 

 The latter tends to fall below the former, and, what is more 

 important, this discrepancy is accepted as equitable by investors. 

 The recognition of this fact will go far towards clearing up 

 the false impressions which at present obscure the question of 

 rates of interest applicable to forest investments. 



51. Effect of the Rate of Interest upon Accumulations of 

 Compound Interest. The cumulative effect of compound 

 interest bears an intimate relation to the rate of interest. Low 

 rates cause a very slow increase and may be applied with some 

 reason to investments which run for a very long period. High 

 rates cause a very rapid increase which soon passes the bounds of 

 possible attainment in practice. The following diagram reveals 

 this relation. (See Diagram I.) 



TABLE I 

 COMPARISON OF THE RESULTS OF SIMPLE AND COMPOUND INTEREST 



ON $100 AT THE END OF A PERIOD OF 50 YEARS 



A comparison of the economic results of simple and compound 

 interest is further brought out by the above table which gives 



