Average Rate of Interest in Sustained Yield Forestry Based on Historical Danish Material

The rate of interest to be used for calculations in forestryunder Danish conditions (3 per cent) has beeen determined asthe long-term effective first mortgage rate (4 per cent) lessthe long-term average inflation (1 per cent) and the averageannual relative rise in prices of forest products ( per cent). A comparison shows that agriculture pays a real net return ofabout 3 per cent (about 3 per cent for larger farms). A comparisonwith the profit on shares seems to show that, according to Danishinvestigations, these yield a real profit of about 4 per cent. The rate of interest in forestry-a very safe type of investment-whichwe have estimated to be about 3 per cent of the market value,seems on the whole to fit well into the general real returnlevel in this country. Similarly the average real interest cost of second mortgageloans has been investigated and proved to be about 4 per cent.For forest owners having bank loans secured by third mortgage,the real interest cost of these is presumably 5 per cent ormore, but varies from person to person. A figure shows real interest costs at various degrees of indebtedness. The majority of Danish forests have a rate of interest of about3 per cent, or sometimes less (this applies to some unencumberedestates). So far, only few larger forests have a rate of interestof about 4 per cent. A rate of 5 per cent or more is mainlyseen in very small forests.