TEXT 2

Headdresses and Hemlines

(Excerpts from Edward Chancellor’s Devil Take the Hindmost, A History of Financial Speculation (Plume, 2000), pp. 44-48. The original text has been edited to conform the objectives of the Exam.

Seventeen-century investors were no less sophisticated than their counterparts in the modern world. The valuation of annuities and lottery tickets, both of which paid an income for a limited number of years but did not return the principal, involved the process of discounting future cash flows. What is nowadays called the “time value of money” is clearly comprehended in John Law’s remark that “anticipation is always at a discount... $ 100 to be paid now is of more value than $ 1000 to be paid by $ 10 a year for 100 years”.