1. Actuaries are frequently called into court cases involving accidents that cause disability. Their job is to calculate the amount of damages to be paid by estimating the future lost income of the disabled person. Consider the following:

   A man, age 48, is injured in an accident at his place of work and is unable to work for the rest of his life. Since his accident was due to the negligence of his employer, he sues his employer for damages. He hires Actuary A to estimate the amount of damages he can sue for. The employer hires Actuary B to also estimate the amount of damages. The two actuaries come up with two different sets of assumptions:

Current salary Annual raise Retirement age Interest rate, i(1)

Actuary A $66,000 4% 65 6%

Actuary B $66,000 1.5% 60 8%

Assume the following:

1. (i) Salary is paid out in monthly installments (1styear = $5500 at the end of each month)

2. (ii) Salary increases each year by the given percentage, but continues to be paid out in

   monthly installments at the end of each month

3. (iii) Current salary is what is being paid in the first year.

4. (iv) You can also assume that the man just turned age 48 at the time of the accident.

5. (v) You will need to calculate equivalent monthly interest rates and use them

Calculate the amount to be awarded to the man as a lump sum payment made today to cover his future lost income under the assumptions of each of the two actuaries. (Hint: Set up columns for age, time, end of month salary, and present value of the salary under the two actuarys assumption)