You are serving on a jury. A plaintiff is suing the city for injuries sustained after...

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You are serving on a jury. A plaintiff is suing the city forinjuries sustained after a freak street sweeper accident. In thetrial, doctors testified that it will be five years before theplaintiff is able to return to work. The jury has already decidedin favor of the plaintiff. You are the foreperson of the jury andpropose that the jury give the plaintiff an award to cover thefollowing: (a) The present value of two years’ back pay. Theplaintiff’s annual salary for the last two years would have been$43,000 and $46,000, respectively. (b) The present value of fiveyears’ future salary. You assume the salary will be $51,000 peryear. (c) $150,000 for pain and suffering. (d) $20,000 for courtcosts. Assume that the salary payments are equal amounts paid atthe end of each month. If the interest rate you choose is an EAR of6.5 percent, what is the size of the settlement? (Do not roundintermediate calculations and round your answer to 2 decimalplaces, e.g., 32.16.) How do you find this answer on a BAII PlusCalculator?

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Step 1 Calculate APR with the use of EAR The value of APR with the use of EAR is determined as below APR Number of Months1Effective Rate of Interest112 1 Substituting values in the above formula we get APR 12165 1 631 Step 2 Calculate Future Value of Annuity Today of the Back Pay from 2 Years Ago The future value annuity of the back pay from 2 years ago can be calculated with the use of FV Future Value functionformula of See Answer

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Transcribed Image Text

You are serving on a jury. A plaintiff is suing the city forinjuries sustained after a freak street sweeper accident. In thetrial, doctors testified that it will be five years before theplaintiff is able to return to work. The jury has already decidedin favor of the plaintiff. You are the foreperson of the jury andpropose that the jury give the plaintiff an award to cover thefollowing: (a) The present value of two years’ back pay. Theplaintiff’s annual salary for the last two years would have been$43,000 and $46,000, respectively. (b) The present value of fiveyears’ future salary. You assume the salary will be $51,000 peryear. (c) $150,000 for pain and suffering. (d) $20,000 for courtcosts. Assume that the salary payments are equal amounts paid atthe end of each month. If the interest rate you choose is an EAR of6.5 percent, what is the size of the settlement? (Do not roundintermediate calculations and round your answer to 2 decimalplaces, e.g., 32.16.) How do you find this answer on a BAII PlusCalculator?