Navigate to the Deceptive Advertising example below and respond to the following prompts:

a. In the example, why is $100 only worth $9.23 today?

b. Discounting: If we increased the length of time involved, would this present value increase or decrease?

c. Compounding: If the going rate of the savings certificate increased above 10%, what would happen to the future value of the certificate? Would it be above or below $100?

d. Ethics: Is this scenario deceptive advertising? Why or why not?

e. Support your position with at least one biblical principle with a specific Bible verse that you feel is relevant to the situation (explain how and why it applies).

Deceptive Advertising?

Businesses sometimes advertise that you should Come try our product. If you do, well give you $100 just for coming by! If you read the fine print, it says they will give you a savings certificate that will pay you $100 in 25 years. If the going interest rate on such certificates is 10%, how much are they really paying you today?

What youre actually getting is the present value of $100 to be paid in 25 years. If the discount rate is 10% per year, then the discount factor is:

1 / 1.1²⁵ = 1 / 10.8347 = .0923

This tells you that a dollar in 25 years is worth a little more than nine cents today, assuming a 10 percent discount rate. Given this, the promotion is actually paying you about .0923 x $100 = $9.23. Maybe this is enough to draw customers, but its not $100.