Question

Paulina bought a used car as she was entering college and planned to trade it in when she graduated four years later. She had learned in her high school financial algebra class that the average used car depreciated at an annual rate of 15%. If she had paid $13,900 for her car, how much can she expect to get when it is time for her to trade it in for a new car?

Answer 1

1st year

depreciable value: $13900

annual depreciation: $13900*15% = $2085

2nd year

depreciable value: $13900 - $2085 = $11815

annual depreciation: $11815*15% = $1772.25

3rd year

depreciable value: $11815 - $1772.25 = $10042.75

annual depreciation: $10042.75*15% = $1506.41

4th year

depreciable value: $10042.75 - $1506.41 = $8536.34

annual depreciation: $8536.34*15% = $1280.45

Final value: $8536.34 - $1280.45 = $7255.89