Question

Sam bought a used car for $8,000. He boasted that he got a great deal since the value of the car two years ago

(when it was new) was $15,000. His friend, Derek, was skeptical, stating that the value of a car typically depreciates
about 25% per year, so Sam got a bad deal.
b. Who is right, Sam or Derek?

Answer 1

Sam

Explanation:

The value of the car after n years can be calculated by the equation of depreciation, which will be:

V(n) = V₀*(1 - i)ⁿ

Where V₀ is the initial value, and i the depreciation rate.

After 2 years:

V(2) = 15,00*(1-0.25)²

V(2) = $ 8,437.5

Since Sam paid $ 8,000 by the car, he maid a good deal.