The Authors Provide an Example That Illustrates the Calculation of the Present

question 81

Multiple Choice

The authors provide an example that illustrates the calculation of the present discounted value for the lost wages from a deceased worker, and one component in this calculation is the worker's annual mortality rate (m) . Suppose we conduct this computation in two different ways --- one calculation assumes m is constant for all future periods, and the other calculation allows m to decline over time due to improvements in medical technology. Which estimated PDV will be larger?

• A) The PDV with constant m will be larger.
• B) The PDV with variable m will be larger.
• C) The two PDV's will be equal.
• D) The answer to this question depends on the assumed interest rate.

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