Problem: You are serving on a jury. A plaintiff is suing the city for injuries continued after a freak street sweeper accident. In trial, doctors testified that it will be 5 years before the plaintiff is capable to return to work. The jury has already decided in favour of plaintiff. You are the foreperson of the jury and propose which the jury give the plaintiff an award to cover following:
(a) The present value of two years’ back pay. The plaintiff’s annual salary for last two years would have been $49,000 and $52,000, respectively.
(b) The present value of five years’ future salary. You suppose the salary will be $56,000 each year.
(c) $160,000 For pain and suffering.
(d) $30,000 for court costs.
Suppose the salary payments are equivalent amounts paid at the end of each month.
Requirement 1:
When the interest rate you choose is an EAR of 11 percent, what is size of settlement?
Requirement 2:
When you were the plaintiff, would you like to see a lower or higher interest rate?