SSET 26 – Theory of INVESTMENT

 Investment: present wealth destined to generate future wealth. 

This simple definition contains the elements to develop an investment theory:

  • Wt0: present wealth.
  • Wtn: future wealth.
  • tn: time.
  • g: generate wealth (gain), as differential g = Wtn  Wt0.
  • U(g,a): marginal utility of the generation and saving of wealth (decreasing).
  • U(d,i): marginal utility of destruction and exchange of wealth (increasing). 

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