Allison bought a Blu-ray DVD player from the store for $275 that came with a one-year warranty. At checkout, she was asked if she would like to buy a two-year extended warranty that would replace her DVD player with an identical one if it broke down. The extended warranty costs $70, and Allison expects that the DVD player will depreciate in value by $50 every year as new models come out (this means a replacement would cost $175 after 2 years and $125 after 3 years). Suppose Allison pays for the purchase of the extended warranty with her credit card, which has a 5 percent interest rate. Also assume that Allison knows there is a 10 percent chance that the DVD player will break in any given year. The present value of buying the extended warranty is $24.79. (Round your response to two decimal places and use a minus sign if necessary.)

Allison bought a Blu-ray DVD player from the store for $275 that came with a one-year warranty. At checkout, she was asked if she would like to buy a two-year extended warranty that would replace her DVD player with an identical one if it broke down. The extended warranty costs $70, and Allison expects that the DVD player will depreciate in value by $50 every year as new models come out (this means a replacement would cost $175 after 2 years and $125 after 3 years). Suppose Allison pays for the purchase of the extended warranty with her credit card, which has a 5 percent interest rate. Also assume that Allison knows there is a 10 percent chance that the DVD player will break in any given year. The present value of buying the extended warranty is $24.79. (Round your response to two decimal places and use a minus sign if necessary.)

Personal Finance

13th Edition

ISBN:9781337669214

Author:GARMAN

Publisher:GARMAN

Chapter8: Vehicle And Other Major Purchases

Section: Chapter Questions

Problem 1FPC

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