You are serving on a jury. A plaintiff is suing the city for injuries sustained
ID: 2728427 • Letter: Y
Question
You are serving on a jury. A plaintiff is suing the city for injuries sustained after a freak street sweeper accident. In the trial, doctors testified that it will be five years before the plaintiff is able to return to work. The jury has already decided in favor of the plaintiff. You are the foreperson of the jury and propose that the jury give the plaintiff an award to cover the following:
The present value of two years’ back pay. The plaintiff’s annual salary for the last two years would have been $55,000 and $58,000, respectively.
The present value of five years’ future salary. You assume the salary will be $62,000 per year.
$35,000 for court costs.
If the interest rate you choose is an EAR of 9 percent, what is the size of the settlement?
You are serving on a jury. A plaintiff is suing the city for injuries sustained after a freak street sweeper accident. In the trial, doctors testified that it will be five years before the plaintiff is able to return to work. The jury has already decided in favor of the plaintiff. You are the foreperson of the jury and propose that the jury give the plaintiff an award to cover the following:
Explanation / Answer
Details EAR to be considered =9% Monthly compounding/Discount Rate=0.75% Year -2 Year -1 Year 1-5 Yearly Wages 55,000 58,000 62,000 Monthly Wages 4,583 4,833 5,167 PV of two back years Pay PV of future 5 years salaries Year -1 Salary Compounding Factor=1.0075^n PV of Back salaries Months Salary Discount factor =1/1.0075^n PV of future salaries Month -1 4,833 1.0075 4,869 Month -1 5,167 0.993 5,129 Month -2 4,833 1.0151 4,906 Month -2 5,167 0.985 5,090 Month -3 4,833 1.0227 4,943 Month -3 5,167 0.978 5,052 Month -4 4,833 1.0303 4,980 Month -4 5,167 0.971 5,015 Month -5 4,833 1.0381 5,017 Month -5 5,167 0.963 4,978 Month -6 4,833 1.0459 5,055 Month -6 5,167 0.956 4,940 Month -7 4,833 1.0537 5,093 Month -7 5,167 0.949 4,904 Month -8 4,833 1.0616 5,131 Month -8 5,167 0.942 4,867 Month -9 4,833 1.0696 5,169 Month -9 5,167 0.935 4,831 Month -10 4,833 1.0776 5,208 Month -10 5,167 0.928 4,795 Month -11 4,833 1.0857 5,247 Month -11 5,167 0.921 4,759 Month -12 4,833 1.0938 5,286 Month -12 5,167 0.914 4,724 Year -2 Month -13 5,167 0.907 4,689 Month -1 4,583 1.1020 5,051 Month -14 5,167 0.901 4,654 Month -2 4,583 1.1103 5,088 Month -15 5,167 0.894 4,619 Month -3 4,583 1.1186 5,127 Month -16 5,167 0.887 4,585 Month -4 4,583 1.1270 5,165 Month -17 5,167 0.881 4,551 Month -5 4,583 1.1354 5,204 Month -18 5,167 0.874 4,517 Month -6 4,583 1.1440 5,243 Month -19 5,167 0.868 4,483 Month -7 4,583 1.1525 5,282 Month -20 5,167 0.861 4,450 Month -8 4,583 1.1612 5,322 Month -21 5,167 0.855 4,417 Month -9 4,583 1.1699 5,362 Month -22 5,167 0.848 4,384 Month -10 4,583 1.1787 5,402 Month -23 5,167 0.842 4,351 Month -11 4,583 1.1875 5,442 Month -24 5,167 0.836 4,319 Month -12 4,583 1.1964 5,483 Month -25 5,167 0.830 4,287 Total $ 124,072.3 Month -26 5,167 0.823 4,255 Month -27 5,167 0.817 4,223 Total PV of Back salaries $ 124,072.3 Month -28 5,167 0.811 4,192 Month -29 5,167 0.805 4,160 Month -30 5,167 0.799 4,129 Month -31 5,167 0.793 4,099 Month -32 5,167 0.787 4,068 Month -33 5,167 0.781 4,038 Month -34 5,167 0.776 4,008 Month -35 5,167 0.770 3,978 Month -36 5,167 0.764 3,948 Month -37 5,167 0.758 3,919 Month -38 5,167 0.753 3,890 Month -39 5,167 0.747 3,861 Month -40 5,167 0.742 3,832 Month -41 5,167 0.736 3,804 Month -42 5,167 0.731 3,775 Month -43 5,167 0.725 3,747 Month -44 5,167 0.720 3,719 Month -45 5,167 0.714 3,692 Month -46 5,167 0.709 3,664 Month -47 5,167 0.704 3,637 Month -48 5,167 0.699 3,610 Month -49 5,167 0.693 3,583 Month -50 5,167 0.688 3,556 Month -51 5,167 0.683 3,530 Month -52 5,167 0.678 3,503 Month -53 5,167 0.673 3,477 Month -54 5,167 0.668 3,451 Month -55 5,167 0.663 3,426 Month -56 5,167 0.658 3,400 Month -57 5,167 0.653 3,375 Month -58 5,167 0.648 3,350 Month -59 5,167 0.643 3,325 Month -60 5,167 0.639 3,300 Total $ 248,911.8 Total PV of future salaries = $ 248,911.8 Total considerations : 1. PV of Back years pay 124,072.27 2. PV of future pays 248,911.82 3. Pain & suffereing compensation 190,000 4. Court costs 35,000 Total Settlement value $ 597,984.1 So Total Settlement value is $597,984.10
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