Question

A new car is purchased for $26,000 and over time its value depreciates by one half every 5 years. What is the value of the car years after it was purchased to the nearest hundred dollars?

Answer 1

Answer: $6,500

Explanation:

Question says after 10 years.

The value of the car depreciates by 1/2 every year which is 50%, every 5 years.

In 10 years therefore, the car would have depreciated by half of its value, twice.

Use the future value formula:

= Amount * (1 + rate) ^ no. of periods

= 26,000 * ( 1 - 50%)²

= $6,500

Note: There are two periods because the depreciation is every 5 years and 10 years have gone by so the number of periods is: 10 / 5 = 2 periods