Question

Mr. Keller bought a car for $20,000. A study shows that a car will depreciate (go DOWN in value) by 15% each year. How much is Mr. Keller’s car worth after 5 years?

A) Formula used:
B)Substitute values:
C) Final answer
D) Does this final answer make sense compared to the original cost of the car? Why?
E) DESCRIBE (using a complete sentence or two) how you can solve this problem graphically.

Answer 1

The answer would be 15000 which is thee interest. Hope that helped you!

Answer 2

Part A

The formula to be used is as shown below:

`FV=PV (1-r)^n`

Where FV=Future Value

PV=Present Value

r=rate, n= number of years

Part B

In our case, PV=20000, r=15%=0.15, n=5

Thus applying this in the formula we get:

`FV= 20000(1-0.15)^5 =20000(0.85)^5\approx8874.1`

Part C

The value of car after 5 years will be $ 8874.1

Part D

Yes, this this answer makes sense compared to the original cost of the car. This is because the depreciation at the rate of 15% per year will bring down the cost of the car substantially over a period of 5 years. The usage of the car and wear & tear all contribute significantly to the depreciation in value of the car from $20000 to $8874.1

Part E

We can draw the graph by taking the x axis as the number of years till 5 and the y axis as the value of the car at each of those years. We can then marks the corresponding points and join them.