29. Liam O’Kelly is 25 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 $7.63 per thousand dollars of insurance coverage. Because Liam wants a $100,000 policy (which is 3.5 times his annual salary), the annual premium would be $763, with the first payment due immediately (i.e., at age 25).

A friend of Liam’s suggests that the $763 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 60,” the friend advises. (4.7)

a. Is the friend’s statement really true?

b. Discuss the trade-off that Liam is making if he decides to invest his money in a mutual fund.