Exercise

Discount factors and depreciation

Unfortunately, not everything grows in value over time.

In fact, many assets depreciate, or lose value over time. To simulate this, you can simply assume a negative expected rate of return.

Example:

Calculate the final depreciated value of an initially $10,000 car which declines in value by 3% per year for 10 years:

\( \$10,000*(1 + -0.03)^{10} = \$7,374.24 \)

Instructions 1/3

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  • Calculate the future value of a $100 investment that depreciates in value by 5% per year for 10 years and assign it to future_value.