Question

a car depreciates at rate of 10%per year.
the car cost £20000 new.
(a) explain why the car wont be worth £16000 after 2 years
(b) show that the car will be worth £16200 after 2 years and find the value of the car after 3 years
(c) describe the type of correlation between the value of the car and age of the car

Answer 1

every year multiply value by 0.90
1 year= 20,000 * .9
2 years 20,000 * .9^2
3 years 20,000 * .9^3

so part (c)
n years 20,000 * .9^n

It is like reverse compound interest, it will not go down 2,000 every year, but only 10% of its MOST RECENT value every year

so 2 years
20,000 * .81 = 16200

3 years 20,000 * .9 * .9 * .9

(c) already did above

Answer 2

thanks Damon
1 THING HOW COME 0.90?

Answer 3

a loss of 10% means that each year the value is 90% of what it was before.