Which formula is used when replacing income for a specific number of years?

The Present Value of an Annuity formula is utilized when calculating the replacement of income over a specific period. This formula allows individuals to determine the current value of a series of future payments, which is essential in scenarios such as income replacement during disability or planning for retirement.

When dealing with income replacement, especially for defined periods, you are essentially trying to find out how much money you would need right now to generate a series of payments that replace income over those years. The Present Value of an Annuity gives you the ability to account for the time value of money, meaning it factors in how the value of money changes over time due to interest rates.

Using this formula, it's possible to assess how much should be invested today to allow for equal annual withdrawals, thereby mimicking the replacement of income during the specified duration. This makes it particularly useful for financial planning and ensuring that an individual’s income needs are met over the planned timeframe.

The other options, while relevant in different financial calculations, do not address the need to evaluate a series of income payments over time in the manner required for income replacement.