Question

The effect of depreciation can be computed using a formula similar to the formula for compound interest.
a. Assume depreciation is the same each month. Write a problem involving depreciation and solve it.



b. Develop a general formula for depreciation defining what each variable in the formula stands for.

Answer 1

This is not straight line depreciation but a constant percentage depreciation per month.

let value after a month be d times value the month before. (like 0.97 or something)

Then value after n months = original value * d^n

for example if I buy a $500 appliance
and d = .97 per month
then after 2 years
value = 500(.97)^24
= 500(.481)
= $ 241