A discount factor formula for annuity is a mathematical equation used to calculate the present value of a series of future cash flows. For instance, if an individual invests $1,000 per year for 10 years at a 5% interest rate, the discount factor formula can determine the current worth of those future payments.
This formula is significant as it helps individuals and organizations make informed decisions about investments, loans, and financial planning. Its origins can be traced back to the 18th century with the work of mathematicians like Leonhard Euler and Daniel Bernoulli.