Problem $4-63$ Calculating Annuity Values

You are serving on a jury. A plaintiff is sulng the city for injurles sustained after a freak street sweeper accident. In the trlal, doctors

testlfied 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 plaintlff's annual salary for the last two years would have been $$38,000$ and $$41,000,$ respectlvely. $($b$)$ The

present value of five years' future salary. You assume the salary will be $$45,000$ per year. $($c$)$ $$100,000$ for pain and suffering. $($d$)$

$$17,000$ for court costs. Assume that the salary payments are equal amounts pald at the end of each month. If the interest rate you

choose is an EAR of $9$ percent, what is the size of the settlement?

Note: Do not round Intermedlate 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