Calculate 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.

Question

Quizplus · Accepted Answer

11efb84e_7214_5694_9137_2b83ab79cac2_TB1314_00 To calculate the annual cash flows, we can use the formula for the present value of an annuity:

PV = C * [1 - (1 + r)^(-n)] / r

Where PV is the present value (in this case, $500,000), C is the annual payment, r is the interest rate (6%), and n is the number of years (12).

We can solve for C:

C = PV * r / [1 - (1 + r)^(-n)]

Plugging in the values:

C = $500,000 * 0.06 / [1 - (1 + 0.06)^(-12)]

C = $59,638.51

Therefore, the annual cash flows are $59,638.51.

Calculate the Annual Cash Flows of a $500,000,12-Year Fixed-Payment Annuity