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A nested function is a function inside another function. It comes from the term nested tables, where you have smaller tables inside other ones. Some calculations need to use several functions and sometimes this may involve using functions inside other ones. As a very simple example, if you wanted to total the highest value from two individual sets of numbers, you could use two MAX functions inside a SUM function, as follows:

=SUM(MAX(A5:A10),MAX(B5:B10))

Notice that there are two brackets at the end. The second last one is from the MAX function and the last one is from the SUM function.

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