Suppose that the salary of an engineer during the coming year is expected to be

Question

Suppose that the salary of an engineer during the coming year is expected to be $128,000. It is expected to increase by 12% per year over the following four years, when he would retire and receive a pension. He has just been in a bad accident and will be unable to work again, so a judge is estimating the lump sum amount that the insurance company must pay to the engineer now in order to replace his salary. The interest rate is taken to be 10%, compounded yearly, during this period. What is the present worth now of the earnings over the next five years?

Explanation / Answer

128000*12/100*4=61440$

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