Problem 11-3 Effect of discount rate [LO11-3]

A brilliant young scientist is killed in a plane crash. It is anticipated that he could have earned $310,000 a year for the next 30 years. The attorney for the plaintiffs estate argues that the lost income should be discounted back to the present at 4 percent. The lawyer for the defendants insurance company argues for a discount rate of 9 percent.

What is the difference between the present value of the settlement at 4 percent and 9 percent? Compute each one separately. Use Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. (Do not round intermediate calculations. Round your answers to 2 decimal places.) PV at 4% rate ___________________

PV at 9% rate ___________________