Average Yearly Depreciation

Date: 06/07/2002 at 12:49:09
From: Chris
Subject: word problem on depreciation values

I'm trying to figure out the model pricing on a Chevrolet Sport 
Utility Vechicle showing its depreciation rate in value per year.  
I've obtained the price history for the last years as follows:

YEAR   Kelly Blue Book Price History
1992    9,380
1993   10,430
1994   11,630 
1995   12,960
1996   14,795
1997   16,715
1998   18,685
1999   20,840
2000   25,750
2001   28,710
2002   No listing yet

The 2002 Suburban is currently selling for the retail price of 
$35,888.

I tried subtracting each number from the largest number and then I 
divided by 11 (the number of years) to get an average of $1,757.36.  
When I tried to graph it to show a decrease instead it showed an 
increase.  

What's the formula to be able to find out the average decrease in 
value per year?  I need help to point me in the right direction.

Date: 06/07/2002 at 14:12:42
From: Doctor Ian
Subject: Re: word problem on depreciation values

Hi Chris,

Instead of subtracting each number from the largest number, you 
need to subtract each one from the number that comes just before 
it. 

But it's not clear that average decrease, in absolute terms, is 
what you want.  In the table below, 'price' is the price in a 
particular year; 'diff' is the price difference from the previous 
year; and 'pct' is the percentage drop in price from the previous 
year:

  year  price    diff   pct 
  1992   9,380   1050   10.07% 
  1993  10,430   1200   10.32% 
  1994  11,630   1330   10.26% 
  1995  12,960   2015   13.46% 
  1996  14,975   1740   10.41% 
  1997  16,715   1970   10.54% 
  1998  18,685   2155   10.34% 
  1999  20,840   4910   19.07% 
  2000  25,750   2960   10.31% 
  2001  28,710    -      -    

It looks like 10% per year is a pretty good rule of thumb for 
this model. 

Does this help? 

- Doctor Ian, The Math Forum
  http://mathforum.org/dr.math/