Final answer:
The student's question pertains to the formula for the present value interest factor of an annuity, used in finance to calculate the current value of future payments by accounting for interest over time.
Step-by-step explanation:
The formula the student is asking about is the formula for the present value interest factor of an annuity. It is used to calculate the current value of a series of future payments, taking into account a specific interest rate over a number of periods. The correct formula is:
PV = R × [1 - (1/(1 + r)ˆⁿ)]/r
Where:
PV represents the present value of the annuity,
R represents the regular payment amount,
r represents the interest rate per period,
t represents the total number of periods.
This formula is derived from the concept of compound interest, which is different from simple interest. Simple interest is calculated only on the principal amount, whereas compound interest is calculated on the principal and also on the accumulated interest from previous periods.