Problem $4-63$ Calculating Annuity Values

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: $($a$)$ The present value of two

years' back pay. The plaintiff's annual salary for the last two years would have been $$31,000$ and $$34,000,$ respectively. $($b$)$ The present

value of five years' future salary. You assume the salary will be $$38,000$ per year. $($c$)$ $$100,000$ for pain and suffering. $($d$)$ $$10,000$ for

court costs. Assume that the salary payments are equal amounts paid at the end of each month. If the interest rate you choose is an

EAR of $7$ percent, what is the size of the settlement?

Note: Do not round intermediate calculations and round your answer to $2$ decimal places, e$.$g$.,32\mathrm{.}16.$

Size of the settlement

If you were the plaintiff, would you like to see a higher or lower interest rate?

Higher interest rate

Lower interest rate