Time Value of Money
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- The value of $100 in the future equals $ 9.23 today, presuming that the discount rate is 10% since the discount factor of 10% in 25 years is 0.0923. These are the same as giving someone $9.23 today in the form of savings that is compounded annually with a 10% interest rate for 25 years or giving the same person $ 100 after 25 years, Either way, the total amounts to $100—thus implying that $9.23 today is equivalent to $100 in 25 years.
- When the payment period is increased, the present value decreases since the current value of money is inversely proportional to the length of payment time given.
- The higher the interest rates, the lower the present value and the higher the future value (Nguyễn 2020). Therefore, if the going rate of saving certificate increases above 10%, the future value of the certificate would rise above $100 since the interest rates are directly proportional to the prospective amount.
- This scenario is deceptive since the advertisement only minds about catching the consumers attention by rephrasing the narrative $100 is worth 9.23 today. In this case, the ad was unethical since it was against the guidelines that regulate advertising since it used information that was misleading the customers. Therefore, customers should always ensure they are fully informed and understand the contract well before making any decision.
- Romans 13:1stipulates that every person should be subject to the governing authorities because God has instituted every power that exists. The bible verse is relevant in this case since it commands individuals and businesses to abide by the set rules and guidelines set by relevant authorities. In this scenario, if the firm followed the advertising guidelines, they would have provided the right information and allow customers to make decisions with their consent.
References
Nguyễn Vân, H. (2020). Fundamentals of Corporate Finance (INS3007-Corporate Finance).