An historical example of discounting in an early eighteenth-century Chinese financial scheme

We describe an early eighteenth-century Chinese financial co-operative scheme in which seven participants created a mutual fund for a six-year period. The scheme is analysed in terms of contemporary discounted cash-flow models and estimates of the financial and business risks to the participants are made. The relatively simple scheme devised appears to have accommodated ‘discount rates’ and interest rates appropriate to the prevailing economic and investment climate. From the nature of the payment schedule, it is apparent that the participants recognized the time value of money and the concept of risk. The case draws from the disciplines of accounting, finance, history and theology.