Question

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 ​$ per thousand dollars of insurance coverage. Because Liam wants a ​$ policy​ (which is 2. 5 times his annual​ salary), the annual premium would be ​$​, with the first payment due immediately​ (i. E. , at age​ 21). A friend of​ Liam's suggests that the ​$ annual premium should be deposited in a good mutual fund rather than in the insurance policy. ​ "If the mutual fund earns ​% per​ year, you can become a millionaire by the time you retire at age​ 65," the friend advises. LOADING. Click the icon to view the interest and annuity table for discrete compounding when i​% per year. A. Is the​ friend's statement really​ true? The future value of annual premiums deposited in a good mutual fund is ​$ nothing. ​ (Round to the nearest​ dollar. )

Answer 1

Because the future value of annual premiums deposited in a mutual fund is 755 (F/A, 9%, 45) = $397,023.34, Then, the friend is correct since the mutual fund is roughly three times the sum under the Insurance policy.

Was Liam's suggestion correct?

Generally, Premium  payment is mathematically given as

X=60-20

X=45years

Where future value is

755 (F/A, 9%, 45)

In conclusion

755 (F/A, 9%, 45)  = 755 * 525.8587

755 (F/A, 9%, 45) = $397,023.34

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Complete Question

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 $8.39 per thousand dollars of insurance coverage Because Liam wants a $90,000 policy (which is 2.5 times his annual salary), the annual premium would be $755, with the first payment due immediately (i.e., at age 21). A friend of Liam's suggests that the $755 annual premium should be deposited in a good mutual fund rather than in the insurance policy. "If the mutual fund earns 9% per year, you can become a millionaire by the time you retire at age 65," the friend advises.