It is now December 31, 2017 (t = 0), and a jury justfound in favor of a woman who sued the city for injuries sustained in a January 2016 accident.She requested recovery of lost wages plus $300,000 for pain and suffering plus $60,000for legal expenses. Her doctor testified that she has been unable to work since the accidentand that she will not be able to work in the future. She is now 62, and the jury decided thatshe would have worked for another 3 years. She was scheduled to have earned $36,000 in2016. (To simplify this problem, assume that the entire annual salary amount would havebeen received on December 31, 2016.) Her employer testified that she probably wouldhave received raises of 3% per year. The actual payment for the jury award will be madeon December 31, 2018. The judge stipulated that all dollar amounts are to be adjusted toa present value basis on December 31, 2018, using an 8% annual interest rate and usingcompound, not simple, interest. Furthermore, he stipulated that the pain and suffering andlegal expenses should be based on a December 31, 2017, date. How large a check must thecity write on December 31, 2018?
It is now December 31, 2017 (t = 0), and a jury just
found in favor of a woman who sued the city for injuries sustained in a January 2016 accident.
She requested recovery of lost wages plus $300,000 for pain and suffering plus $60,000
for legal expenses. Her doctor testified that she has been unable to work since the accident
and that she will not be able to work in the future. She is now 62, and the jury decided that
she would have worked for another 3 years. She was scheduled to have earned $36,000 in
2016. (To simplify this problem, assume that the entire annual salary amount would have
been received on December 31, 2016.) Her employer testified that she probably would
have received raises of 3% per year. The actual payment for the jury award will be made
on December 31, 2018. The judge stipulated that all dollar amounts are to be adjusted to
a
compound, not simple, interest. Furthermore, he stipulated that the pain and suffering and
legal expenses should be based on a December 31, 2017, date. How large a check must the
city write on December 31, 2018?
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