If the premiums on $100,000 of 20 year term life insurance is $25 per month for

Question

If the premiums on $100,000 of 20 year term life insurance is $25 per month for a forty year old non-smoker. The risk free interest rate is 3% per year. Would you recommend that I buy the insurance or a 20 year municipal bond issued by NYC pays 6% per year. I am 40 years old. (a)Choose the investment with the highest return over 20 years. (b) Insurance and municipal bonds are not substitutes and there is not sufficient information to answer the question. (c) Term Insurance only makes sense if you plan to live longer than 20 years. (d) The Municipal Bond (e) Term Insurance WHY?

Explanation / Answer

(d) The Municipal Bond

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