You are serving on a jury. A plaintiff is suing the town for injuries sustained after a freak snowplow incident. During 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 to the other jury members that the plaintiff be awarded an amount covering the following:

The present value of two years back pay. The plaintiffs annual salary for the last two years would have been $43,000 and $46,000, respectively.

The present value of five years future salary. You assume in your calculation that the salary in this timeframe would remain unchanged at $51,000 annually.

$150,000 for pain and suffering.

$20,000 for court costs.

Assume that the salary payments are equal amounts paid at the end of each month. You choose an interest rate whose EAR is 6.5%.

Questions:

What is the amount of the settlement you propose in todays dollars?

If you were the plaintiff would you have preferred that the jury use a higher or lower interest rate? Why?