Final answer:
The annual cash flows of a $500,000, 12-year fixed-payment annuity earning a guaranteed 6 percent per year if annual payments are to begin at the end of the current year is $59,638.51.
Step-by-step explanation:
To calculate this, we can use the following formula:
PMT = PV * (r * (1 + r)^n) / ((1 + r)^n - 1)
Where:
PMT is the annual cash flow
PV is the present value of the annuity ($500,000)
r is the interest rate (6%)
n is the number of periods (12)
Plugging in the values, we get:
PMT = 500,000 * (0.06 * (1 + 0.06)^12) / ((1 + 0.06)^12 - 1)
PMT = 500,000 * (0.06 * 1.795851) / (1.795851 - 1)
PMT = 500,000 * 0.107575 / 0.795851
PMT = $59,638.51
Therefore, the annual cash flows of a $500,000, 12-year fixed-payment annuity earning a guaranteed 6 percent per year if annual payments are to begin at the end of the current year is $59,638.51.