You are serving on a jury. A plaintiff is suing the city for injuries sustained after falling down an uncovered manhole. In the trial, doctors testified that it will be 5 years before the plaintiff is able to return to work. The jury has already decided in favor of the plaintiff, and has decided to grant the plaintiff an award to cover the following items:
?a. ?Recovery of 2 years of back-pay ($34,000 for two years ago, and $36,000 for last year, which ends today). Assume that it is December 31 and that all salary is received at year end. This recovery should include the time value of money.
?b. ?The present value of 5 years of future salary. Assume that the plaintiff’s salary would increase at a rate of 3 percent per year.
?c. ?$100,000 for pain and suffering.
?d. ?$20,000 for court costs.
?Assume an interest rate of 7 percent. What should be the size of the settlement?