Question

The original purchase price of a car is 12,000 Each year its value depreciates by 5% Three years after its purchase, what is the value of the car?

Answer 1

What is the value after one year?

Answer 2

5% for a year is 15% for 3 years. So, 12000*15/100 = ??

Answer 3

1800

Answer 4

u can also use the formula of simple interest
I=Pnr

Answer 5

12000-1800= 10200

Answer 6

mmmmhh ok

Answer 7

Therefore value of car= 10200

Answer 8

oh ok then mult. by three ...?

Answer 9

Sorry I didn't get u

Answer 10

10200 * 3 cuzz its three years ..

Answer 11

no

Answer 12

you have calculated the depreciation for 3 years already

Answer 13

10200 is the final answer

Answer 14

ohh ok

Answer 15

:)

Answer 16

thanks

Answer 17

ur welcome

Answer 18

?? Why are we suing a Simple Interest formula?

Notice:

Original Price: 12000
First Depreciation: .05*12000 = 600
Percent Depreciation: 600/12000 = 0.05 = 5%
Value after One Year: 12000 - 600 = 11400

If we use the same DOLLAR depreciation, look what happens.

Second Depreciation: 600
Percent Depreciation: 600/11400 = 0.052632 = 5.2632%

This violates the premise of the problem statement. The depreciation should be 5%, not 5.2632%!

If something depreciates 5% each year, then each year the value is decreased 5%. This is not a constant value. Decreasing 5% suggests that there is 95% left. 100% - 5% = 95%

We should be doing this:

Value(t) = 12000*0.95^t

Value(0) = 12000*0.95^0 = 12000 -- As required
Value(1) = 12000*0.95^1 = 11,400 -- As Before
Value(2) = 12000*0.95^2 = 10,830
Value(3) = 12000*0.95^3 = 10,288.5

Answer 19

Hey u r using compound interest which is not needed here

Answer 20

I explained the need for the process. If you are okay using 5.26% when the problem statement says 5%, go right ahead and do it that way. If, however, you're happier using 5% when the problem statement says 5%, you should read my presentation more carefully.

Using the method you prescribed, what is the depreciated value after 21 years?