Liam O'Kelly is 20 years old and is thinking about buying a term life insurance policy with his wife as the beneficiary. The quoted annual premium for Liam is $8.44 per thousand dollars of insurance coverage. Because Lia, wants a $110,000 policy (which is 2.5 times his annual salary), the annual premium would be $928, with the first payment due immediately (i.e., at age 21). A friend of Liam's suggests that the $928 annual premium should be deposited in a good mutual fund rather than in the insurance policy. "If the mutual fund earns 8% per year, you can become a millionaire by the time you retire at age 65," the friend advises. Is the friend's statement really true? What is the future value of annual premiums deposited in a good mutual fund?

Liam O'Kelly is 20 years old and is thinking about buying a term life insurance policy with his wife as the beneficiary. The quoted annual premium for Liam is $8.44 per thousand dollars of insurance coverage. Because Lia, wants a $110,000 policy (which is 2.5 times his annual salary), the annual premium would be $928, with the first payment due immediately (i.e., at age 21). A friend of Liam's suggests that the $928 annual premium should be deposited in a good mutual fund rather than in the insurance policy. "If the mutual fund earns 8% per year, you can become a millionaire by the time you retire at age 65," the friend advises. Is the friend's statement really true? What is the future value of annual premiums deposited in a good mutual fund?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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