SOLUTION MANUAL FOR PERSONAL FINANCE 14TH
EDITION, BY E. THOMAS GARMAN.
,TABLE OF CONTENTS
PART I: FINANCIAL PLANNING.
1. UNDERSTANDING PERSONAL FINANCE.
2. CAREER PLANNING.
3. FINANCIAL STATEMENTS, GOALS, AND
BUDGETS. PART II: MONEY
MANAGEMENT.
4. MANAGING INCOME TAXES.
5. MANAGING CHECKING AND SAVINGS ACCOUNTS.
6. BUILDING AND MAINTAINING GOOD CREDIT.
7. CREDIT CARDS AND CONSUMER LOANS.
8. VEHICLES AND OTHER MAJOR PURCHASES.
9. OBTAINING AFFORDABLE HOUSING.
PART III: INCOME AND ASSET PROTECTION.
10. MANAGING PROPERTY AND LIABILITY RISK.
11. PLANNING FOR HEALTH CARE EXPENSES.
12. LIFE INSURANCE
PLANNING. PART IV:
INVESTMENTS.
13. INVESTMENT FUNDAMENTALS.
14. INVESTING IN STOCKS AND BONDS.
15. MUTUAL AND EXCHANGE-TRADED FUNDS.
16. REAL ESTATE AND HIGH-RISK INVESTMENTS.
17. RETIREMENT AND ESTATE PLANNING.
,SOLUTION AND ANSWER GUIDE
GARMAN/FOX, PERSONAL FINANCE 14E, CHAPTER 1: THINKING LIKE A FINANCIAL
PLANNER
TABLE OF CONTENTS
ANSWERS TO CHAPTER CONCEPT CHECKS .................................................................................. 2
WHAT DO YOU RECOMMEND NOW? ................................................................................................ 4
LET’S TALK ABOUT IT ........................................................................................................................... 5
DO THE MATH .......................................................................................................................................... 6
FINANCIAL PLANNING CASES ............................................................................................................ 8
EXTENDED LEARNING ........................................................................................................................ 10
, ANSWERS TO CHAPTER CONCEPT CHECKS
LO1.1 RECOGNIZE THE KEYS TO ACHIEVING FINANCIAL SUCCESS.
1. EXPLAIN THE FIVE STEPS IN THE FINANCIAL PLANNING PROCESS.
ANS: THERE ARE FIVE FUNDAMENTAL STEPS TO THE PERSONAL FINANCIAL PLANNING
PROCESS: (1) EVALUATE YOUR FINANCIAL HEALTH TO YOUR EDUCATION AND CAREER
CHOICE; (2) DEFINE YOUR FINANCIAL GOALS; (3) DEVELOP A PLAN OF ACTION TO
ACHIEVE YOUR GOALS; (4) IMPLEMENT SPENDING AND SAVING PLANS TO MONITOR AND
CONTROL PROGRESS TOWARD YOUR GOALS; AND (5) REVIEW YOUR FINANCIAL
PROGRESS AND MAKE CHANGES AS APPROPRIATE.
2. DISTINGUISH AMONG FINANCIAL SUCCESS, FINANCIAL SECURITY, AND FINANCIAL
HAPPINESS.
ANS: FINANCIAL SUCCESS IS THE ACHIEVEMENT OF FINANCIAL ASPIRATIONS THAT
ARE DESIRED, PLANNED, OR ATTEMPTED. SUCCESS IS DEFINED BY THE INDIVIDUAL OR
FAMILY THAT SEEKS IT. FINANCIAL SUCCESS MAY BE DEFINED AS BEING ABLE TO LIVE
ACCORDING TO ONE’S STANDARD OF LIVING. FINANCIAL SECURITY IS THAT
COMFORTABLE FEELING THAT YOUR FINANCIAL RESOURCES WILL BE ADEQUATE TO
FULFILL ANY NEEDS YOU HAVE AS WELL AS YOUR WANTS. FINANCIAL HAPPINESS IS
THE EXPERIENCE YOU HAVE WHEN YOU ARE SATISFIED WITH MONEY MATTERS. PEOPLE
WHO ARE HAPPY ABOUT THEIR FINANCES WILL SEE A SPILLOVER INTO POSITIVE
FEELINGS ABOUT LIFE IN GENERAL.
3. SUMMARIZE WHAT YOU WILL ACCOMPLISH STUDYING PERSONAL FINANCE.
ANS: SEVERAL THINGS CAN BE ACCOMPLISHED BY STUDYING PERSONAL FINANCE.
RECOGNIZE HOW TO MANAGE UNEXPECTED AND EXPECTED FINANCIAL EVENTS. PAY
AS LITTLE AS POSSIBLE IN INCOME TAXES. UNDERSTAND HOW TO EFFECTIVELY
COMPARISON SHOP FOR VEHICLES AND HOMES. PROTECT WHAT WE OWN. INVEST
WISELY. ACCUMULATE AND PROTECT THE WEALTH THAT WE MAY CHOOSE TO SPEND
DURING OUR NON-WORKING YEARS (E.G., RETIREMENT) OR DONATE.
4. WHAT ARE THE BUILDING BLOCKS TO ACHIEVING FINANCIAL SUCCESS?
ANS: THE BUILDING BLOCKS FOR ACHIEVING FINANCIAL SUCCESS INCLUDE A
FOUNDATION OF REGULAR INCOME THAT PROVIDES THE MEANS TO SUPPORT YOUR
LIFESTYLE AND SAVE FOR DESIRED GOALS IN THE FUTURE. THE FOUNDATION
SUPPORTS A BASE OF VARIOUS BANKING ACCOUNTS, INSURANCE PROTECTION, AND
EMPLOYEE BENEFITS. THEN WE CAN ESTABLISH GOALS, A RECORDKEEPING SYSTEM, A
BUDGET, AND AN EMERGENCY SAVINGS FUND. WE WILL ALSO MANAGE VARIOUS
EXPENSES SUCH AS HOUSING, TRANSPORTATION, INSURANCE, AND THE PAYMENT OF
TAXES. WE WILL ALSO NEED TO HANDLE CREDIT, SAVINGS, AND EDUCATIONAL COSTS.
FINALLY, WE INVEST IN VARIOUS INVESTMENT ALTERNATIVES SUCH AS MUTUAL
FUNDS, STOCKS, AND BONDS, OFTEN FOR RETIREMENT. AS A RESULT OF ALL THESE
BUILDING BLOCKS, WE ARE MORE APT TO HAVE A FINANCIALLY SUCCESSFUL LIFE.
LO1.2 UNDERSTAND HOW THE ECONOMY AFFECTS YOUR PERSONAL FINANCIAL
SUCCESS.
1. SUMMARIZE THE PHASES OF THE BUSINESS CYCLE.
ANS: THE BUSINESS CYCLE ENTAILS A WAVELIKE PATTERN OF RISING AND FALLING
ECONOMIC ACTIVITY AS MEASURED BY ECONOMIC INDICATORS LIKE UNEMPLOYMENT
RATES OR THE GROSS DOMESTIC PRODUCT. THE PHASES OF THE BUSINESS CYCLE
INCLUDE EXPANSION (PREFERRED STAGE—PRODUCTION IS HIGH, UNEMPLOYMENT
LOW, INTEREST RATES LOW OR FALLING, STOCK MARKET AND CONSUMER DEMAND
EDITION, BY E. THOMAS GARMAN.
,TABLE OF CONTENTS
PART I: FINANCIAL PLANNING.
1. UNDERSTANDING PERSONAL FINANCE.
2. CAREER PLANNING.
3. FINANCIAL STATEMENTS, GOALS, AND
BUDGETS. PART II: MONEY
MANAGEMENT.
4. MANAGING INCOME TAXES.
5. MANAGING CHECKING AND SAVINGS ACCOUNTS.
6. BUILDING AND MAINTAINING GOOD CREDIT.
7. CREDIT CARDS AND CONSUMER LOANS.
8. VEHICLES AND OTHER MAJOR PURCHASES.
9. OBTAINING AFFORDABLE HOUSING.
PART III: INCOME AND ASSET PROTECTION.
10. MANAGING PROPERTY AND LIABILITY RISK.
11. PLANNING FOR HEALTH CARE EXPENSES.
12. LIFE INSURANCE
PLANNING. PART IV:
INVESTMENTS.
13. INVESTMENT FUNDAMENTALS.
14. INVESTING IN STOCKS AND BONDS.
15. MUTUAL AND EXCHANGE-TRADED FUNDS.
16. REAL ESTATE AND HIGH-RISK INVESTMENTS.
17. RETIREMENT AND ESTATE PLANNING.
,SOLUTION AND ANSWER GUIDE
GARMAN/FOX, PERSONAL FINANCE 14E, CHAPTER 1: THINKING LIKE A FINANCIAL
PLANNER
TABLE OF CONTENTS
ANSWERS TO CHAPTER CONCEPT CHECKS .................................................................................. 2
WHAT DO YOU RECOMMEND NOW? ................................................................................................ 4
LET’S TALK ABOUT IT ........................................................................................................................... 5
DO THE MATH .......................................................................................................................................... 6
FINANCIAL PLANNING CASES ............................................................................................................ 8
EXTENDED LEARNING ........................................................................................................................ 10
, ANSWERS TO CHAPTER CONCEPT CHECKS
LO1.1 RECOGNIZE THE KEYS TO ACHIEVING FINANCIAL SUCCESS.
1. EXPLAIN THE FIVE STEPS IN THE FINANCIAL PLANNING PROCESS.
ANS: THERE ARE FIVE FUNDAMENTAL STEPS TO THE PERSONAL FINANCIAL PLANNING
PROCESS: (1) EVALUATE YOUR FINANCIAL HEALTH TO YOUR EDUCATION AND CAREER
CHOICE; (2) DEFINE YOUR FINANCIAL GOALS; (3) DEVELOP A PLAN OF ACTION TO
ACHIEVE YOUR GOALS; (4) IMPLEMENT SPENDING AND SAVING PLANS TO MONITOR AND
CONTROL PROGRESS TOWARD YOUR GOALS; AND (5) REVIEW YOUR FINANCIAL
PROGRESS AND MAKE CHANGES AS APPROPRIATE.
2. DISTINGUISH AMONG FINANCIAL SUCCESS, FINANCIAL SECURITY, AND FINANCIAL
HAPPINESS.
ANS: FINANCIAL SUCCESS IS THE ACHIEVEMENT OF FINANCIAL ASPIRATIONS THAT
ARE DESIRED, PLANNED, OR ATTEMPTED. SUCCESS IS DEFINED BY THE INDIVIDUAL OR
FAMILY THAT SEEKS IT. FINANCIAL SUCCESS MAY BE DEFINED AS BEING ABLE TO LIVE
ACCORDING TO ONE’S STANDARD OF LIVING. FINANCIAL SECURITY IS THAT
COMFORTABLE FEELING THAT YOUR FINANCIAL RESOURCES WILL BE ADEQUATE TO
FULFILL ANY NEEDS YOU HAVE AS WELL AS YOUR WANTS. FINANCIAL HAPPINESS IS
THE EXPERIENCE YOU HAVE WHEN YOU ARE SATISFIED WITH MONEY MATTERS. PEOPLE
WHO ARE HAPPY ABOUT THEIR FINANCES WILL SEE A SPILLOVER INTO POSITIVE
FEELINGS ABOUT LIFE IN GENERAL.
3. SUMMARIZE WHAT YOU WILL ACCOMPLISH STUDYING PERSONAL FINANCE.
ANS: SEVERAL THINGS CAN BE ACCOMPLISHED BY STUDYING PERSONAL FINANCE.
RECOGNIZE HOW TO MANAGE UNEXPECTED AND EXPECTED FINANCIAL EVENTS. PAY
AS LITTLE AS POSSIBLE IN INCOME TAXES. UNDERSTAND HOW TO EFFECTIVELY
COMPARISON SHOP FOR VEHICLES AND HOMES. PROTECT WHAT WE OWN. INVEST
WISELY. ACCUMULATE AND PROTECT THE WEALTH THAT WE MAY CHOOSE TO SPEND
DURING OUR NON-WORKING YEARS (E.G., RETIREMENT) OR DONATE.
4. WHAT ARE THE BUILDING BLOCKS TO ACHIEVING FINANCIAL SUCCESS?
ANS: THE BUILDING BLOCKS FOR ACHIEVING FINANCIAL SUCCESS INCLUDE A
FOUNDATION OF REGULAR INCOME THAT PROVIDES THE MEANS TO SUPPORT YOUR
LIFESTYLE AND SAVE FOR DESIRED GOALS IN THE FUTURE. THE FOUNDATION
SUPPORTS A BASE OF VARIOUS BANKING ACCOUNTS, INSURANCE PROTECTION, AND
EMPLOYEE BENEFITS. THEN WE CAN ESTABLISH GOALS, A RECORDKEEPING SYSTEM, A
BUDGET, AND AN EMERGENCY SAVINGS FUND. WE WILL ALSO MANAGE VARIOUS
EXPENSES SUCH AS HOUSING, TRANSPORTATION, INSURANCE, AND THE PAYMENT OF
TAXES. WE WILL ALSO NEED TO HANDLE CREDIT, SAVINGS, AND EDUCATIONAL COSTS.
FINALLY, WE INVEST IN VARIOUS INVESTMENT ALTERNATIVES SUCH AS MUTUAL
FUNDS, STOCKS, AND BONDS, OFTEN FOR RETIREMENT. AS A RESULT OF ALL THESE
BUILDING BLOCKS, WE ARE MORE APT TO HAVE A FINANCIALLY SUCCESSFUL LIFE.
LO1.2 UNDERSTAND HOW THE ECONOMY AFFECTS YOUR PERSONAL FINANCIAL
SUCCESS.
1. SUMMARIZE THE PHASES OF THE BUSINESS CYCLE.
ANS: THE BUSINESS CYCLE ENTAILS A WAVELIKE PATTERN OF RISING AND FALLING
ECONOMIC ACTIVITY AS MEASURED BY ECONOMIC INDICATORS LIKE UNEMPLOYMENT
RATES OR THE GROSS DOMESTIC PRODUCT. THE PHASES OF THE BUSINESS CYCLE
INCLUDE EXPANSION (PREFERRED STAGE—PRODUCTION IS HIGH, UNEMPLOYMENT
LOW, INTEREST RATES LOW OR FALLING, STOCK MARKET AND CONSUMER DEMAND
