Question

What is the correct equation for the present value of an annuity with regular payment ( c ) for ( t ) periods at interest rate ( r )?

A) ( PV = cr(1 - (1 + r)^-t) )
B) ( PV = c × r × t )
C) ( PV = c1 - (1 + r)^-t )
D) ( PV = c × (1 + r)^t )

Answer 1

The correct equation for the present value of an annuity with regular payment (c) for (t) periods at interest rate (r) is option A: PV = cr(1 - (1 + r)^(-t)).

Step-by-step explanation:

The correct equation for the present value of an annuity with regular payment (c) for (t) periods at interest rate (r) is option A: PV = cr(1 - (1 + r)^(-t)).

This formula is derived from the regular compound growth formula. The present value (PV) can be found from the future value (FV) using the formula PV(1 + i)^n = FV.

To calculate the present value of an annuity, you need to multiply the regular payment (c) by the interest rate (r) and subtract the product from 1 minus (1 + r)^(-t).