Volume 7, 2010
Morris G. Danielson, Amy F. Lipton
Ethics and the Introductory Finance Course
This paper discusses how the teaching of ethics can be interwoven with the most basic concept in finance: time value of money. Although valuation formulas yield precise numerical answers, they require many assumptions about future economic conditions. If decision makers use false information or erroneous assumptions, they will arrive at an incorrect value estimate, even if the calculations are performed correctly. Thus, the valuation process can be manipulated by
unscrupulous participants. This concept is illustrated with references to recent events. Examples appropriate for classroom use are included in an appendix.