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
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ISBN:9780190931919
Author:NEWNAN
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Chapter1: Making Economics Decisions
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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?
Transcribed Image Text: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?
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