Question

Depreciate means to lower/lessen in value. For example, cars depreciate on average about 20% of their value each year from the year it was made. Let’s say a brand new Jeep in 2020 was $32k (label as 3.2 on the graph).

If you purchase a 2020 Jeep in 2024, what might be an average base price?

Answer 1

Answer: $13,107.20

Explanation:

If a brand new Jeep in 2020 had a base price of $32,000, and you want to estimate its value in 2024, you can use the average annual depreciation rate you mentioned, which is 20%. To calculate the estimated value of the 2020 Jeep in 2024, you can use the following formula:

Estimated Value in 2024 = Initial Value × (1 - Depreciation Rate)^Number of Years

In this case:

- Initial Value (2020) = $32,000

- Depreciation Rate = 20% (0.20)

- Number of Years = 2024 - 2020 = 4 years

Now, plug these values into the formula:

Estimated Value in 2024 = $32,000 × (1 - 0.20)^4

Estimated Value in 2024 = $32,000 × (0.80)^4

Estimated Value in 2024 = $32,000 × 0.4096

Estimated Value in 2024 ≈ $13,107.20

So, the estimated base price of a 2020 Jeep in 2024, assuming a 20% annual depreciation rate, would be approximately $13,107.20. Keep in mind that this is a simplified estimate, and actual depreciation rates can vary depending on factors like the make and model of the vehicle, its condition, and market demand.