A home stereo depreciates by 20% each year. What’s the value of a stereo, purchased new for $1,200, after two years?

A home stereo depreciates by 20% each year. What’s the value of a stereo, purchased new for $1,200, after two years?

Detailed Explanation

The stereo depreciates 240 the first year (0.2 × 1200 – 240). Therefore, the value of the stereo after the first year is 1200 – 240 = 960. The second year the stereo would depreciate by 192 (0.2 × 960). The value of the stereo after the second year is 960 – 192 = 768.