THE VALUATION OF VARYING INCOMES: 3

In the previous paper the reasons for the well known anomaly in the valuation of varying incomes of limited duration were examined and it was shown that the Double Sinking Fund Method as originally proposed did not solve the problem where different remunerative rates of interest were used. It was pointed out that in fact the problem was not a dual rate problem but a triple rate one since during some part of the life of the income there were three different rates of interest operating. If, however, the problem is constrained by requiring that during any part of the period only one remunerative rate is permitted, then the Double Sinking Fund Method is consistent, providing that it is appreciated that during one period there will be a shortfall of income which is exactly balanced by a surplus in another when each is capitalised at the corresponding remunerative rates.