Present value analysis
Assumptions
Discount rate, 2.9%
General Inflation rate, 2.0%
Compensation inflation, 2.5%
Medical inflation, 2.6%
Date of loss calculation date - 4/1/2018
Questions
1. What is the mathematical formula for calculating the future value of a single amount?
2. What is the mathematical formula for calculating the present value of a single amount?
3. What is the present value of an annual loss of $100,000 per year starting 1/1/2018 and ending 12/31/2030?
4. What is the present value of the following:
a. Loss of $45,000 a year starting 4/1/2018 and ending 12/31/2025
b. Replacement earnings starting 7/1/2018 at $20,000 for the first and second year and then increasing to $30,000 in year 3 through 12/31/2025
c. Future medical expenses:
i. Physical therapy - 12 sessions a year at a cost of $100 per session starting 4/1/2018 and continuing through life expectancy (5/31/2045)
ii. Never block injections every other year at a cost of $2,500 per treatment starting 4/1/2018 through life expectancy (5/31/2045)
5. Why are U.S. Treasuries used when discounting present value for damages related to individuals?
6. As a prospective trier-of-fact (judge, jury, arbitrator), what method of discounting to present value do you find easier to present and explain present value by explaining a growth rate and a discount rate, or just a net discount rate? Why?
7. When would you be required to show an inflation rate and a discount rate (instead of just a net discount rate)?
8. Review Consumer Price Index - bureau of labor statistics (website) (Answer in your own words as you were explaining it to someone.
a. What does CPI measure?
b. How does BLS collect medical cost information?
c. What are the two broad categories under Medical Care?
Attachment:- Present Value of Lost Earnings.xlsx