Buy Term and Invest the Rest Practice Problems-key 1. A person is considering paying $6000/year for a 30-year, limited-pay whole life policy or $1,000/year for a 30-year term policy. The person can invest at 5% and is in a 20% tax bracket. a. If the person invests the difference between the whole-life policy and the term policy at the start of each year for 30 years and the return is taxable current-income, how much will be accumulated at the end of the 30 years? $291,641.68 b. If the person invests the difference between the whole life policy and the term policy at the start of each year for 30 years and the return is tax-deferred, e.g., all capital gains, how much will be accumulated at the end of the 30 years? $309,043.16 2. A person is considering paying $8800/year for a 20-year, limited-pay whole life policy or $1,200/year for a 20-year term policy. The person can invest at 5.8% and is in a 22% tax bracket. a. If the person invests the difference between the whole-life policy and the term policy at the start of each year for 20 years and the return is taxable current-income, how much will be accumulated at the end of the 20 years? $249,836.42 b. If the person invests the difference between the whole-life policy and the term policy at the start of each year for 20 years and the return is tax-deferred, e.g., all capital gains, how much will be accumulated at the end of the 20 years? $259,253.39 3. A person is considering paying $10500/year for a 30-year, limited-pay whole life policy or $1,400/year for a 30-year term policy. The person can invest at 5.4% and is in a 35% tax bracket. a. If the person invests the difference between the whole-life policy and the term policy at the start of each year for 30 years and the return is taxable current-income, how much will be accumulated at the end of the 30 years? $487,056.15 b. If the person invests the difference between the whole-life policy and the term policy at the start of each year for 30 years and the return is tax-deferred, e.g., all capital gains, how much will be accumulated at the end of the 30 years? $539,365.91