Solution Manual for Personal Financial
y y y y
y Planning15th Edition by Randy Billingsley,
y y y y y
Lawrence J. Gitman, Michael D. Joehnk
y y y y y y
,SOLUTION MANUAL FOR
Personal Financial Planning 15th Edition by Randy Billingsley, y
Lawrence J.Gitman, Michael D. Joehnk
y
Understanding the Financial y y
Planning ProcessChapter 1
y y y y
How yWill yThis yAffect yMe?
The yheart yof yfinancial yplanning yis ymaking ysure yyour yvalues yline yup ywith yhow yyou yspend yand
ysave.yThat ymeans yknowing ywhere yyou yare yfinancially yand yplanning yon yhow yto yget ywhere yyou
ywant yto ybeyin ythe yfuture yno ymatter ywhat ylife ythrows yat yyou. yFor yexample, yhow yshould yyour
yplan yhandle ythe yprojection ythat ySocial ySecurity ycosts ymay yexceed yrevenues yby y2035? yAnd
ywhat yif ythe ygovernmentydecides yto yraise ytax yrates yto yhelp ycover ythe yfederal ydeficit? yAn
yinformed yfinancial yplan yshould yreflect y such yuncertainties yand y more.
This ychapter yoverviews ythe yfinancial yplanning yprocess yand yexplains yits ycontext. yTopics
yinclude yhow yfinancial yplans ychange yto yaccommodate yyour ycurrent ystage yin ylife yand ythe yrole
ythat yfinancialyplanners ycan yplay yin yhelping yyou yachieve yyour yobjectives. yAfter yreading ythis
ychapter yyou ywill yhave ya ygood yperspective yon yhow yto yorganize y your yoverall ypersonal
yfinancial yplan.
LEARNING GOALS y
LG1 yIdentify ythe ybenefits yof yusing ypersonal yfinancial yplanning ytechniques yto ymanage
yyouryfinances.
Key yconcept yin ythis ysection yis ythe yplanning ymodel yas ydisplayed yin yExhibit y1.1. yYour ystandard
yof yliving y is ygreatly yimpacted yby yyour yspending yhabits yand yyour ycommitment yto ysaving. yYour
yspending yis ymeasured yby yyour ypropensity yto yconsume. yWealth yis ythe ytotal yvalue yof yall
ypropertyyyou yown yless ythe yamount ythat y you yowe yto yothers.
ACTIVITY: y Ask ythe ystudents yto yassume ythat ythey yhave y just y inherited y$100,000. y What y will
yyouydo y with ythe y money? y Write ydown ythree yways y you ywill yspend yor yuse ythe y money.
,Ask ythe ystudents yto yshare yone yitem ywith ythe yclass yand yrecord ywhat ythey ysay yso ythat ythe
yentire yclass ycan yreflect yon ythe yanswers. yHopefully, yat yleast ya yfew ywill ymention yinvesting
yeven yif yonly y$10,000 yof ythe yamount. yUse ytheir y answers yto ydiscuss ytaking y care yof ycurrent
y needs y versus yfuture yneeds.
Focus yon ytheir ypropensity yto yconsume yand yits yimpact yon yaccumulating ywealth. yPoint
yout ytheyFinancial yPlanning yTip, y ―Be ySMART y in yPlanning y Your y Financial yGoals.‖
Use yExhibit y1.2 yto yshow yhow ythe yaverage yperson yearns yand yspends ytheir ymoney yand yExhibit
y 1.6 ytoyhelp ythe ystudent y identify ywhere ythey yare y now.
LG2 yDescribe ythe ypersonal yfinancial yplanning yprocess yand ydefine yyour ygoals.
Dwight y Eisenhower, yarmy y general yand y president, y is yquoted yas ysaying y ―Plans yare yuseless;
yPlanning yis ypriceless‖. yThe yprocess yof yplanning yallows yyou yto yfocus yon ythe yissues ythat yare
ymost yimportant yand yto y be yready ywhen ythings ychange.
Exhibit y1.3 ylists ythe ySix yStep yFinancial yPlanning yProcess. yThe yfirst yand ymost yimportant yis
ydefining yyour yfinancial ygoals. yExhibit y1.6 ylists ygoals yby yage yto ydemonstrate yhow ygoals
ychange yover ytime. yUse ythe yexamples yin yExhibit y 1.5 yto yask ystudents yif ythe yassumptions yare
yrealistic. yYes,ythe yanswer yis yin ythe yexhibit, ybut ymany ywill ynot yhave yread ychapter yat ythis
ypoint. yFor yyour yuse, ytheyassumptions yare:
Assumption y1: ySaving ya yfew ythousand ydollars ya yyear yshould yprovide yenough yto yfund ymy
ychild‘sycollege yEducation.
Assumption y2: yAn yemergency yfund ylasting y3 y months yshould ybe yadequate.
Assumption y3: yI ywill ybe yable yto yretire yat y65 yand yshould yhave yplenty yto ylive yon yin
yretirement. yAssumption y4: yI‘m yrelying yon ythe yrule yof ythumb ythat yI ywill yneed yonly y70
ypercent yof ymy ypre-yretirement y income yto y manage y nicely yin yretirement.
There yare yseveral yworksheets yin ythe ybook. yWorksheet y1.1 ygives ythe ystudent ya yformat yto
ywrite ydown ytheir yPersonal yFinancial yGoals. yThere yis ypower yin ywriting ydown ygoals y[and ymost
yany yotheryplan]. yRecording ythe ygoal yand ythen yreviewing ythree ymonths ylater ywill yhelp yyou yto
ykeep yfocus yonythe ygoal.
LG3 yExplain ythe ylife ycycle yof yfinancial yplans, ytheir yrole yin yachieving yyour yfinancial ygoals,
yhow yto ydeal ywith yspecial yplanning yconcerns, yand ythe yuse yof yprofessional yfinancial
yplanners.
Exhibit y1.7 ycan yhelp yfocus ythe yattention yon yhow ygoals ydiffer ybetween ythe yvarious ystages yof
ylife. ySection y1-3b ylists yvarious ydecisions ythat yyou ywill yhave yto ymake yover yyour ylife. yThe
ysection y1-3c yaddresses ySpecial yPlanning yConcerns. yWorksheet y1.2 yfocuses yon ythe yfinancial
ybenefit yto ythe yfamily yof ythe ysecond yincome. yIf ythe ysecond yincome yis yfrom ya yminimum ywage
yjob, yit ymay ynot ybe yaygood yfinancial ydecision. y Of ycourse yhaving ya y job, yeven ya y minimum ywage
y job, y may ygive ythe ypersonypsychic y income ythat y will yoverride ythe y financial y impact.
While yperhaps yoff ytopic, yI yrecall ya yhigh yschool yscience yteacher ywho ywas ya ysmoker. yHe
ywalked ythrough ythe yamount yof ymoney yhe yspent y on ypurchasing y tobacco y products. yThat
y computation yhad ya
, lot yto ydo ywith ymy ydecision yto ynot y smoke. yHow ythis yrelates yto ythe ycourse yis ythat ythis yis
yanyillustration yof yhow ythe y financial yimpact yof ya ydecision ycan ydrive ythe ydecision.
LG4 yExamine ythe yeconomic yenvironment’s yinfluence yon ypersonal yfinancial yplanning.
For yolder yfolks, ythe yfinancial ycrisis yof y2008-2009 yis yfresh yin your ymemory. yTo ythe ystudent yof
y2021,ythat ycrisis yis ymore yof yhistory ythan ylife. yIf yyou ycan yshare ya ywar ystory yon yhow yyou ywere
ypersonally yimpacted, yit ywill yhelp ybring ythe yimpact yof ythe yworld yeconomy yon yfinancial yplans
yto ylife. yThe ybookyspeaks yhow yto ymanage ythis ytype yof ycrisis, ybut yyou yhad yto ygo ythrough yit yto
yreally yunderstand ythe yimpact y it y had.
The yvalue yof yprofessional yadvice yis ygreatly yunderstated. yIf yby ytalking yto ya yprofessional yyou
ycan yprevent y making ya ymistake y-- ythat y can ybe yof ya ygreat yvalue. y Section y1-3e yspeaks yto ythe
yuse yof yprofessional yfinancial yplanners. y Exhibit y 1.9 ylists yout ythe yvarious ycertifications ythat
y planners yhave.
Economic yor ybusiness ycycles yare yreal. yPerhaps ythe ymost yuseful ything yabout ythe ycycles yis ythe
yknowledge ythat yif ythings yare ybad, yyou yknow ythey ywill yget ybetter. yOf ycourse, ywhen ylife yis
ygood, yyou yknow ythat ythe ybad ycycle ywill ycome yaround yagain. yThus, y financial yplanning
yrequires ysaving y inyt he ygood ytimes y for ythe ybad ytimes. y y See ythe y ―Test y Yourself‖ yquestion y1-17
y for y a yshort y discussion yof ybusiness ycycles.
The ypower yof ycompounding yis yrarely yunderstood. yExhibit y1.8 yshows yhow ythe yamount
y$10,000ywill ygrow yover ytime. yThe ylonger ythe yinvestment ystays yinvested, ythe ygreater ythe
yamount y– ythe ypower yof ycompound y interest.
LG5 yEvaluate ythe yimpact yof yage, yeducation, yand ygeographic ylocation yon ypersonal yincome.
Exhibit y1.12 ysays yit yall.
LG6 yUnderstand ythe yimportance yof ycareer ychoices yand ytheir yrelationship yto
ypersonalyfinancial yplanning.
Exhibit y 1.13 yshows ythat ythe ychoice yof ya ycollege y major yhas ya yfinancial yimpact. y Of ycourse
ymoneyycannot ybuy yhappiness, ybut yhaving ya ybit yhelps. yIf yyou yreally ywant yto ybe yan yelementary
yschool yteacher, yyou ymust yrecognize ythat yyou ywill ynot yhave yas ymuch ywealth yas ya ylawyer yor
yfinancial yanalyst.
The ysummary yof ythe ylearning ygoals yat ythe yend yof ythe ychapter yshould yaid ythe ystudent yin
yreviewing ythe ychapter ywhen yexam ytime ycomes. yIt ywill ybe yuseful yto ypoint yout yto ythe
ystudent yhow yto yuse ythis ymaterial.
Link yto ySolutions yto yFinancial yPlanning yExercises
Pre-tests
y y y y
y Planning15th Edition by Randy Billingsley,
y y y y y
Lawrence J. Gitman, Michael D. Joehnk
y y y y y y
,SOLUTION MANUAL FOR
Personal Financial Planning 15th Edition by Randy Billingsley, y
Lawrence J.Gitman, Michael D. Joehnk
y
Understanding the Financial y y
Planning ProcessChapter 1
y y y y
How yWill yThis yAffect yMe?
The yheart yof yfinancial yplanning yis ymaking ysure yyour yvalues yline yup ywith yhow yyou yspend yand
ysave.yThat ymeans yknowing ywhere yyou yare yfinancially yand yplanning yon yhow yto yget ywhere yyou
ywant yto ybeyin ythe yfuture yno ymatter ywhat ylife ythrows yat yyou. yFor yexample, yhow yshould yyour
yplan yhandle ythe yprojection ythat ySocial ySecurity ycosts ymay yexceed yrevenues yby y2035? yAnd
ywhat yif ythe ygovernmentydecides yto yraise ytax yrates yto yhelp ycover ythe yfederal ydeficit? yAn
yinformed yfinancial yplan yshould yreflect y such yuncertainties yand y more.
This ychapter yoverviews ythe yfinancial yplanning yprocess yand yexplains yits ycontext. yTopics
yinclude yhow yfinancial yplans ychange yto yaccommodate yyour ycurrent ystage yin ylife yand ythe yrole
ythat yfinancialyplanners ycan yplay yin yhelping yyou yachieve yyour yobjectives. yAfter yreading ythis
ychapter yyou ywill yhave ya ygood yperspective yon yhow yto yorganize y your yoverall ypersonal
yfinancial yplan.
LEARNING GOALS y
LG1 yIdentify ythe ybenefits yof yusing ypersonal yfinancial yplanning ytechniques yto ymanage
yyouryfinances.
Key yconcept yin ythis ysection yis ythe yplanning ymodel yas ydisplayed yin yExhibit y1.1. yYour ystandard
yof yliving y is ygreatly yimpacted yby yyour yspending yhabits yand yyour ycommitment yto ysaving. yYour
yspending yis ymeasured yby yyour ypropensity yto yconsume. yWealth yis ythe ytotal yvalue yof yall
ypropertyyyou yown yless ythe yamount ythat y you yowe yto yothers.
ACTIVITY: y Ask ythe ystudents yto yassume ythat ythey yhave y just y inherited y$100,000. y What y will
yyouydo y with ythe y money? y Write ydown ythree yways y you ywill yspend yor yuse ythe y money.
,Ask ythe ystudents yto yshare yone yitem ywith ythe yclass yand yrecord ywhat ythey ysay yso ythat ythe
yentire yclass ycan yreflect yon ythe yanswers. yHopefully, yat yleast ya yfew ywill ymention yinvesting
yeven yif yonly y$10,000 yof ythe yamount. yUse ytheir y answers yto ydiscuss ytaking y care yof ycurrent
y needs y versus yfuture yneeds.
Focus yon ytheir ypropensity yto yconsume yand yits yimpact yon yaccumulating ywealth. yPoint
yout ytheyFinancial yPlanning yTip, y ―Be ySMART y in yPlanning y Your y Financial yGoals.‖
Use yExhibit y1.2 yto yshow yhow ythe yaverage yperson yearns yand yspends ytheir ymoney yand yExhibit
y 1.6 ytoyhelp ythe ystudent y identify ywhere ythey yare y now.
LG2 yDescribe ythe ypersonal yfinancial yplanning yprocess yand ydefine yyour ygoals.
Dwight y Eisenhower, yarmy y general yand y president, y is yquoted yas ysaying y ―Plans yare yuseless;
yPlanning yis ypriceless‖. yThe yprocess yof yplanning yallows yyou yto yfocus yon ythe yissues ythat yare
ymost yimportant yand yto y be yready ywhen ythings ychange.
Exhibit y1.3 ylists ythe ySix yStep yFinancial yPlanning yProcess. yThe yfirst yand ymost yimportant yis
ydefining yyour yfinancial ygoals. yExhibit y1.6 ylists ygoals yby yage yto ydemonstrate yhow ygoals
ychange yover ytime. yUse ythe yexamples yin yExhibit y 1.5 yto yask ystudents yif ythe yassumptions yare
yrealistic. yYes,ythe yanswer yis yin ythe yexhibit, ybut ymany ywill ynot yhave yread ychapter yat ythis
ypoint. yFor yyour yuse, ytheyassumptions yare:
Assumption y1: ySaving ya yfew ythousand ydollars ya yyear yshould yprovide yenough yto yfund ymy
ychild‘sycollege yEducation.
Assumption y2: yAn yemergency yfund ylasting y3 y months yshould ybe yadequate.
Assumption y3: yI ywill ybe yable yto yretire yat y65 yand yshould yhave yplenty yto ylive yon yin
yretirement. yAssumption y4: yI‘m yrelying yon ythe yrule yof ythumb ythat yI ywill yneed yonly y70
ypercent yof ymy ypre-yretirement y income yto y manage y nicely yin yretirement.
There yare yseveral yworksheets yin ythe ybook. yWorksheet y1.1 ygives ythe ystudent ya yformat yto
ywrite ydown ytheir yPersonal yFinancial yGoals. yThere yis ypower yin ywriting ydown ygoals y[and ymost
yany yotheryplan]. yRecording ythe ygoal yand ythen yreviewing ythree ymonths ylater ywill yhelp yyou yto
ykeep yfocus yonythe ygoal.
LG3 yExplain ythe ylife ycycle yof yfinancial yplans, ytheir yrole yin yachieving yyour yfinancial ygoals,
yhow yto ydeal ywith yspecial yplanning yconcerns, yand ythe yuse yof yprofessional yfinancial
yplanners.
Exhibit y1.7 ycan yhelp yfocus ythe yattention yon yhow ygoals ydiffer ybetween ythe yvarious ystages yof
ylife. ySection y1-3b ylists yvarious ydecisions ythat yyou ywill yhave yto ymake yover yyour ylife. yThe
ysection y1-3c yaddresses ySpecial yPlanning yConcerns. yWorksheet y1.2 yfocuses yon ythe yfinancial
ybenefit yto ythe yfamily yof ythe ysecond yincome. yIf ythe ysecond yincome yis yfrom ya yminimum ywage
yjob, yit ymay ynot ybe yaygood yfinancial ydecision. y Of ycourse yhaving ya y job, yeven ya y minimum ywage
y job, y may ygive ythe ypersonypsychic y income ythat y will yoverride ythe y financial y impact.
While yperhaps yoff ytopic, yI yrecall ya yhigh yschool yscience yteacher ywho ywas ya ysmoker. yHe
ywalked ythrough ythe yamount yof ymoney yhe yspent y on ypurchasing y tobacco y products. yThat
y computation yhad ya
, lot yto ydo ywith ymy ydecision yto ynot y smoke. yHow ythis yrelates yto ythe ycourse yis ythat ythis yis
yanyillustration yof yhow ythe y financial yimpact yof ya ydecision ycan ydrive ythe ydecision.
LG4 yExamine ythe yeconomic yenvironment’s yinfluence yon ypersonal yfinancial yplanning.
For yolder yfolks, ythe yfinancial ycrisis yof y2008-2009 yis yfresh yin your ymemory. yTo ythe ystudent yof
y2021,ythat ycrisis yis ymore yof yhistory ythan ylife. yIf yyou ycan yshare ya ywar ystory yon yhow yyou ywere
ypersonally yimpacted, yit ywill yhelp ybring ythe yimpact yof ythe yworld yeconomy yon yfinancial yplans
yto ylife. yThe ybookyspeaks yhow yto ymanage ythis ytype yof ycrisis, ybut yyou yhad yto ygo ythrough yit yto
yreally yunderstand ythe yimpact y it y had.
The yvalue yof yprofessional yadvice yis ygreatly yunderstated. yIf yby ytalking yto ya yprofessional yyou
ycan yprevent y making ya ymistake y-- ythat y can ybe yof ya ygreat yvalue. y Section y1-3e yspeaks yto ythe
yuse yof yprofessional yfinancial yplanners. y Exhibit y 1.9 ylists yout ythe yvarious ycertifications ythat
y planners yhave.
Economic yor ybusiness ycycles yare yreal. yPerhaps ythe ymost yuseful ything yabout ythe ycycles yis ythe
yknowledge ythat yif ythings yare ybad, yyou yknow ythey ywill yget ybetter. yOf ycourse, ywhen ylife yis
ygood, yyou yknow ythat ythe ybad ycycle ywill ycome yaround yagain. yThus, y financial yplanning
yrequires ysaving y inyt he ygood ytimes y for ythe ybad ytimes. y y See ythe y ―Test y Yourself‖ yquestion y1-17
y for y a yshort y discussion yof ybusiness ycycles.
The ypower yof ycompounding yis yrarely yunderstood. yExhibit y1.8 yshows yhow ythe yamount
y$10,000ywill ygrow yover ytime. yThe ylonger ythe yinvestment ystays yinvested, ythe ygreater ythe
yamount y– ythe ypower yof ycompound y interest.
LG5 yEvaluate ythe yimpact yof yage, yeducation, yand ygeographic ylocation yon ypersonal yincome.
Exhibit y1.12 ysays yit yall.
LG6 yUnderstand ythe yimportance yof ycareer ychoices yand ytheir yrelationship yto
ypersonalyfinancial yplanning.
Exhibit y 1.13 yshows ythat ythe ychoice yof ya ycollege y major yhas ya yfinancial yimpact. y Of ycourse
ymoneyycannot ybuy yhappiness, ybut yhaving ya ybit yhelps. yIf yyou yreally ywant yto ybe yan yelementary
yschool yteacher, yyou ymust yrecognize ythat yyou ywill ynot yhave yas ymuch ywealth yas ya ylawyer yor
yfinancial yanalyst.
The ysummary yof ythe ylearning ygoals yat ythe yend yof ythe ychapter yshould yaid ythe ystudent yin
yreviewing ythe ychapter ywhen yexam ytime ycomes. yIt ywill ybe yuseful yto ypoint yout yto ythe
ystudent yhow yto yuse ythis ymaterial.
Link yto ySolutions yto yFinancial yPlanning yExercises
Pre-tests
