This preview shows page 1. Sign up to view the full content.
Unformatted text preview: years, how much would you require?" "Well, I would have to get more than thirty dollars." With a gleam of triumph, Father thrust home. "That is interest." [Irving Norton Fisher, My Father Irving Fisher (New York: Comet, 1956), p.77] The Idea of Interest
• We may never know when finance began, because financial contracts are as old as written language—in fact, writing appears to have been invented for the purposes of recording financial deals. The first archaeological traces of financial activity appear in the earliest urban civilizations in the Near east. What gave the ancient Sumerians the idea of charging each other interest? Linguistic evidence provides a clue. In the Sumerian language, the word for interest, mash, was also the term for calves. In ancient Greek, the word for interest, tokos, also refers to the offspring of cattle. The Latin term pecus, or flock, is the root of our word “pecuniary.” The Egyptian word for interest, ms, means “to give birth.” All these terms point to the derivation of interest rates as the natural multiplication of livestock. [Financing Civilization, by William Goetzmann] The Time Value of Money
Why is time = money? Positive interest rates/returns. The time value of money is critical for the comparison of cash flows with different timing (e.g., project evaluation, security val...
View Full Document
This note was uploaded on 01/17/2011 for the course MGMT 107 taught by Professor ? during the Winter '08 term at UC Irvine.
- Winter '08