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.)
Chapter8: Vehicle And Other Major Purchases
Section: Chapter Questions
Problem 1FPC
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K17.
![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.)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F323c9976-6b7b-4414-aa82-41105edc66ec%2Ffa796db1-4836-4108-a1d5-0b340c23bcac%2F0oljbi_processed.jpeg&w=3840&q=75)
Transcribed Image Text: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.)
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