Jerry Is Interested in Purchasing a Washing Machine

Essay

Jerry is interested in purchasing a washing machine.The price of the machine is $500,and it comes with a 1-year warranty.The probability that the machine will break down is 20 percent every year.If the machine breaks down in the second year and Jerry holds a warranty,he receives a new washing machine worth $400 that year.If the machine breaks down after 3 years and he holds a warranty,he receives a new machine that is worth $300 after the third year.The price of a warranty for 3 years is $150.The market interest rate is 5 percent.Is buying the warranty a good investment for Jerry? Explain your answer.Show all the necessary calculations.