Recently, some businesses have been saying things like \"Come try our product. I
ID: 2740694 • Letter: R
Question
Recently, some businesses have been saying things like "Come try our product. If you do, we'll give you $100 just for coming by!" If you read the fine print, what you find out is that 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% per year, how much are they really giving you today?
What you're 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/(1.1)25 = .0923
Your discussion post should answer the following:
What is the present value of the $100 promotion, if the discount rate is 10%?
Is this deceptive advertising?
Is it unethical to advertise a future value like this without a disclaimer?
Explanation / Answer
present value of $ 100 in 25 years if the discount rate is 10%
= $ 100*1/(1.1)25= $ 100*0.923
= $ 9.23
so todays value of the advertising is $ 9.23 not the $ 100
Maybe this is enough to draw customers,
it is not unetical to advertise a future value like this without a disclaimer.
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