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Let's assume that we want to have Nick and Pete arrange their accounts With all the identical desire fee (r) and compounding (n), Which following the very same amount of time (t), we wish the accounts to provide the similar value (A). Discover which the two variables not pointed out in this situation so far are the quantity Nick will place into his checking account in the beginning (P), his current price, and the size with the periodic payment of Pete's annuity (m).

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This tells us ways to compute the existing price of an annuity using the two formulation over. Due to the fact the longer term values will be the same (inside our experiment), established the A of 1 equivalent to the A of one other.

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