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Now, let's select the size of Pete's annuity payment (m) and Permit the annuity run its study course. Can it be not accurate that we could play around Along with the dimension of Pete's initial financial institution deposit (P) right until the two accounts experienced the exact same price at the end of this experiment? When this situation is satisfied, we can mention that Pete's Original deposit (P), and that is a present value, correlates Using the present worth of Nick's annuity, as it gives the same foreseeable future benefit under similar situations.
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The issue we want to take into consideration now's: How would we work out the current worth of an annuity? Discover that the next equation has no P in it, so we cannot merely fix for P as we did in the first equation. In a sense, We are going to look at both equations alongside one another by contemplating the next circumstance.
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