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Question

A brilliant young scientist is killed in a plane crash. It isanticipated that he could have earned $370,000 a year for the next40 years. The attorney for the plaintiff’s estate argues that thelost income should be discounted back to the present at 5 percent.The lawyer for the defendant’s insurance company argues for adiscount rate of 11 percent. What is the difference between thepresent value of the settlement at 5 percent and 11 percent?Compute each one separately. Use Appendix D for an approximateanswer but calculate your final answer using the formula andfinancial calculator methods.

Solution

xxxxxxxx:xx compute xxx present xxxxx xx xxx future xxx flow xxxxxxy xxxxx xxxxxxxxx using xxx formula

= xxxxxx/(x+.xx)^x + xxxxxx/(x+.xx)^x+........xxxxxx/(x+.xx)^xxxxxxxxxxy for x percent

= xxxxxx/(x+.xx)^x + xxxxxx/(x+.xx)^x+........xxxxxx/(x+.xx)^xxxxxxx the xxxxxxxxx calculator xx xxx xxxxxxxxx the xxxxxxxxxxxx annuity xxxxxxxx xxxxxx xxx 40 yxxxx 11% = x.xxxxxxxxx xxx present xxxxx for xx % xxxxx be = 370000*8.9511 =$xxxxxxxxxxxxxxxy xxx xxxxxxx value xxx 5% xxxxx xx = 370000*17.1591 =$xxxxxxxxxxxx the xxxxxxxxxx xxxxx xx = $xxxxxxxxxxxx you.

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