It is now December 31, 2008 (t = 0), and a jury just found in favor of

QUESTION

It is now December 31, 2008 (t = 0), and a jury just found in favor of a woman who sued the city for injuries sustained in a January 2007 accident. She requested recovery of lost wages, plus $400,000 for pain and suffering, plus $80,000 for her legal expenses. Her doctor testified that she has been
This has diff parts of payments. Lets take them one by one. Annual Int rate r=8% Also as her age is 62 (2008) now & can work for anotehr 3 yrs (2008 3 = 2011). 1. Date of accident 1Jan07. Salary for Year 2007 is $42,000. Annual Incrase is 3%. Date of payment is 31 Dec09. So Jan07 to Dec09 is 3 yrs. So Salary for Y07 is 42,000=PV1, for Y08=42000*(1 3%)=43260=PV2, for Y09=43260*(1 3%)=44558=PV3 So we need FV of these salary as on 31 Dec09 FV = FV1 Fv2 Fv3 ie Salary duetill 2009 = 42000*(1 8%)^3 43260*(1 8%)^2 44558*(1 8%)^1 = $151,489..(A) Salary for 2010 is Salary of Y09*(1 3%)=44558*(1 3%) = 45895 & for 2011 is 45895*(1

) =47272 Here we need to find the PV of these Salay as on 31 Dec09. So PV of Salary = FV/(1 r)^n = 45895/(1 8%)^1 47272/(1 8%)^2 = $83,023(B) So Total Salary due as on 31 Dec09 is A B = $234,512(C) Pain Suffering & Legal exp are as of 31 Dec08 but paid on 31 Dec09. So here the period is 1 Yr. So FV of exp = (400,000 80,000)*(1 8%)^1 = $518,400.(D) So total amount of checque is sum of C D = $752,912

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