Question

An attorney hires you to perform economic analysis of lost wages in a wrongful death suit. The case involved an insurance agent, Jane Doe, who was killed in an accident just after her 59^th birthday. Ms. Doe could have expected to earn $75,000 this year. Data indicate that the income of insurance agents has increased an average 6% over the past 20 years. Ms. Doe’s expected retirement age was 65 (on her birthday). Available data provide the mortality rated given below for individuals of Ms. Doe’s gender and occupation at various ages. Assume 10% is the appropriate discount rate.

Age	Mortality Rate
59	0.06
60	0.075
61	0.09
62	0.10
63	0.12
64	0.15
65	0.16

a.) Calculate the present discounted value of Ms. Doe’s expected earnings. (For simplicity, assume she received all of her earnings for the preceding year on her birthday.)

b.) The attorney has asked your advice regarding a minimum figure that should be accepted as an out-of-court settlement. What guidance can you give the attorney? Would additional information allow you to give the attorney a more precise estimate of the figure that should be accepted? Give an example of how more information would help.

c.) You must be prepared for cross-examination by the defendant’s attorney. Where would you expect the opposing attorney to attack your testimony?

Answer 1