Follow-up to: historical v. current rates

This case suggest that current rates are more approriate:


BROOKE HARRINGTON, as Personal Representative of the Estate
of Gaylord William Thayer, Deceased, Plaintiffs, v. THE
UNITED STATES OF AMERICA, Defendant.

4-00-CV-90486

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF
IOWA, CENTRAL DIVISION


2002 U.S. Dist. LEXIS 16185

August 28, 2002, Decided
August 28, 2002, Filed


B. Applicable Interest Rates

119. In order to calculate the value of damages due to loss of income and
support in the future, the future income from damages must be discounted, such
that if the money was awarded now, it could be invested in the safest possible
investment, United States Treasury bonds, and yield the income that was lost on
the future date it was expected. Both economists chose an interest rate based on
a calculation [*38] of average interest rates over a period of dating back to
the early 1950's in Dr. Mattila's case, and the early 1970's in Dr. Newkirk's
case. Both economists chose a single interest rate, based on a security of a
certain length. In Dr. Newkirk's case, he chose a 3-month Treasury bill, in Dr.
Mattila's case, a three-year Treasury bond.

120. The Court finds that in order to estimate the amount of money necessary to
yield future income over the course of several years in the safest possible
manner, using a single interest rate based on a Treasury security of a single
term-length is too imprecise. Someone investing money today in order to secure
income ten years from now would not buy a 3-month security or a three-year
security, because the purchase of a short-term security fails to account for a
change in market interest rates that could occur after the security's term
expires. Likewise, the safest investment to secure income one year from now is
not a three-year security, because a change in prevailing market interest rates
could change the value of the security when it is needed, before its term
expires. The safest investment to provide income one year from now is a one year
Treasury [*39] security, the safest investment to provide income five years
from now is a five year Treasury security, and so on. Consequently, the Court
discounted income for any given future year according to the interest rate
offered for a Treasury bond available on August 15, 2002 whose term expires in
the given year.