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Question:

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

A $768
Explaination

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.