Kathy plans to purchase a car that depreciates (loses value) at a rate of 14% per year. The initial cost of the car is $21,000. Which equation represents the value, v, of the car after 3 years?

a) v=21,000(0.14)^3
b) v= 21,000(0.86)^3
c) v=21,000(1.14)^3
d) v= 21,000(0.86)(3)

Question

Kathy plans to purchase a car that depreciates (loses value) at a rate of 14% per year. The initial cost of the car is $21,000. Which equation represents the value, v, of the car after 3 years?

a) v=21,000(0.14)^3
b) v= 21,000(0.86)^3
c) v=21,000(1.14)^3
d) v= 21,000(0.86)(3)

anonymous · Answer

it is b. I am quite sure about this since I am learning financial mathematics.
The equation can be viewed as follows
$$ 21000(1-0.14)^3 $$