The Value of Lost Earnings PDV can be used to determine the value of lost income from a disability or death Chapter 15 Slide 16
Chapter 15 Slide 16 The Value of Lost Earnings ◼ PDV can be used to determine the value of lost income from a disability or death
The Value of Lost Earnings ■ Scenario Harold Jennings died in an auto accident January 1, 1986 at 53 years of age ● Salary:$85,000 ● Retirement Age:60 Chapter 15 Slide 17
Chapter 15 Slide 17 The Value of Lost Earnings ◼ Scenario ⚫ Harold Jennings died in an auto accident January 1, 1986 at 53 years of age. ⚫ Salary: $85,000 ⚫ Retirement Age: 60
The Value of Lost Earnings Question What is the pdv of jennings' lost income to his family? Must adjust salary for predicted increase (9) o Assume an 8% average increase in salary for the past 10 years Chapter 15 Slide 18
Chapter 15 Slide 18 The Value of Lost Earnings ◼ Question ⚫ What is the PDV of Jennings’ lost income to his family? ◆Must adjust salary for predicted increase (g) ⚫ Assume an 8% average increase in salary for the past 10 years
The Value of Lost Earnings Question What is the pdv of jennings' lost income to his family? Must adjust for the true probability of death(m) from other causes o Derived from mortality tables Chapter 15 Slide 19
Chapter 15 Slide 19 The Value of Lost Earnings ◼ Question ⚫ What is the PDV of Jennings’ lost income to his family? ◆Must adjust for the true probability of death (m) from other causes ⚫ Derived from mortality tables
The Value of Lost Earnings Question What is the pdv of jennings' lost income to his family? ◆ Assume F=9% e Rate on government bonds in 1983 Chapter 15 Slide 20
Chapter 15 Slide 20 The Value of Lost Earnings ◼ Question ⚫ What is the PDV of Jennings’ lost income to his family? ◆Assume R = 9% ⚫ Rate on government bonds in 1983