Jason Argo, 35, works for Inter-Mac Transportation Corp. His normal job of loading trucks paid $12.00 per hour. While working, he suffered a back injury and was declared 50 percent disabled. To settle the disability claim, Inter-Mac offered Jason a job as a shipping clerk, which pays $6.00 an hour, plus a one-time payment of $105,000. Both jobs provide 2,000 hours of employment per year.
a) Is the proposed settlement financially fair if the company's retirement age is 55 and Jason's opportunity cost is 10 percent?
b) Suppose raises for unskilled workers in the trucking industry average 2 percent per year. would this change your answer to part (a)? Explain your answer.
c) Jason is tempted to take the company to court in an attempt to get a larger settlement. He estimates the suit will take one year and he knows it will create so much ill will he'll be unable to work for Inter-Mac as a shipping clerk. Under these circumstances, how large must the settlement be to justify going to court?
Discuss the inverse relationship between bond prices and interest rates? Define and explain the meaning and significance of interest rate risk? What is the role of duration in the context of interest rate risk? Discuss.