Question

In: Economics

A criminal is sentenced to 3 years in jail for robbing a gasstation. Their annual...

A criminal is sentenced to 3 years in jail for robbing a gas station. Their annual income working at their day job as a dog walker is $21,000. Currently, the annual interest rate in the market is 7%. What is the present value of their lost earnings, due to being incarcerated, rounded to the nearest dollar? Select one: a. $68,081 b. $55,111 c. $65,341 d. $57,261

Solutions

Expert Solution

Calculation of Present Value of lost earnings:

Annual Income that could be earned in each of the year = $21,000

For present value of $21,000 income for next 3 years we shall multiply income of each year with the present value of $1 at the 7% interest rate.

Present Value Factor for year 1 = 0.93457943925

Present Value Factor for year 2 = 0.87343872827

Present Value Factor for year 3 = 0.81629787688

Present Value of $1 at 7% rate = 2.6243160444

Lost earnings = $21,000 * 2.6243160444 = $55,111

Therefore, option B is correct.

Rahul Sunny answered 2 years ago
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