Factors Controlling the Rate of Interest on Long-Term Investments

Abstract

The net rate of interest yielded by the investment of insurance funds has seldom departed far from 4%. With such a long record of a fairly constant rate of interest we may not unreasonably ask ourselves whether 4% is in any sense a “natural” rate of interest for long-term investments and, if so, what are the factors which control the rate within measurable distance of this figure. Professor Cassel has definitely put the question “why is the rate of interest -04 instead of -004 or -0004?” and he has answered it by indicating that the rate is controlled by the duration of human life.