INVESTMENT OPPORTUNITY PRINCIPLES

§11. The Investment Opportunity PrinciplesSummarized

The chief results of the chain of reasoning which hasbeen followed in this chapter are that the same principleof investment opportunity may now be stated in fourways as:

The Principle of Maximum Present Value.

Out of all options, that one is selected which has themaximum present value reckoned at the marketrate of interest.

The Principle of Comparative Advantage.

Out of all options, that one is selected the advantagesof which over any other option outweighs its dis-advantages, when both these advantages and disad-vantages—returns and costs—are discounted at themarket rate of interest.

The Principle of Return over (Cost.)

Out of all options, that one is selected which, incomparison with any other, yields a rate of returnover cost equal to or greater than the market rate ofinterest.

The Same Principle when the Options Differ by Con-tinuous Gradations.

Out of all options, that one is selected the differencesof which from its nearest rival gives a rate of returnover cost equal to the market rate of interest. Such arate is called the marginal rate of return on cost.

In whichever of these aspects it is regarded, this is theprinciple of investment opportunity. However he reckonsit, every one measures his opportunities to invest—to

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