SOLUTION MANUALbb
Personal Finance, 14th Edition
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By E. Thomas Garman, Chapter 1 - 17
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,TABLE OF CONTENTS bb bb bb
Part I: FINANCIAL PLANNING.
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1. Understanding Personal Finance.
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2. Career Planning.
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3. Financial Statements, Goals, and Budgets.
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Part II: MONEY MANAGEMENT.
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4. Managing Income Taxes.
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5. Managing Checking and Savings Accounts.
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6. Building and Maintaining Good Credit.
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7. Credit Cards and Consumer Loans.
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8. Vehicles and Other Major Purchases.
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9. Obtaining Affordable Housing.
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Part III: INCOME AND ASSET PROTECTION.
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10. Managing Property and Liability Risk.
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11. Planning for Health Care Expenses.
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12. Life Insurance Planning.
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Part IV: INVESTMENTS.
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13. Investment Fundamentals.
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14. Investing in Stocks and Bonds.
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15. Mutual and Exchange-Traded Funds.
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16. Real Estate and High-Risk Investments.
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17. Retirement and Estate Planning.
bb bb bb bb
,SolutionandAnswerGuide bb bb bb
GARMAN/FOX, PERSONAL FINANCE 14E, CHAPTER 1: THINKING LIKE A FINANCIAL PLANNER
B B B B B B B B B B B B B B B B B B B B
TABLE OF CONTENTS BB BB
Answers to Chapter Concept Checks ......................................................................................................... 2
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What Do You Recommend Now? ............................................................................................................... 4
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Let’s Talk About It ...................................................................................................................................... 5
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Do the Math ................................................................................................................................................. 6
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Financial Planning Cases ............................................................................................................................ 8
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Extended Learning .................................................................................................................................... 10
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, ANSWERS TO CHAPTER CONCEPT CHECKS BB BB BB BB
LO1.1 Recognize the keys to achieving financial success.
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1. Explain the five steps in the financial planning process.
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Answer: There are five fundamental steps to the personal financial planning process: (1) evaluate your
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financial health to your education and career choice; (2) define your financial goals; (3) develop a plan of
bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb
action to achieve your goals; (4) implement spending and saving plans to monitor and control progress
bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb
toward your goals; and (5) review your financial progress and make changes as appropriate.
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2. Distinguish among financial success, financial security, and financial happiness.
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Answer: Financial success is the achievement of financial aspirations that are desired, planned, or
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attempted. Success is defined by the individual or family that seeks it. Financial success may be defined as
bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb
being able to live according to one’s standard of living. Financial security is that comfortable feeling that
bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb
your financial resources will be adequate to fulfill any needs you have as well as your wants. Financial
bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb
happiness is the experience you have when you are satisfied with money matters. People who are happy
bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb
about their finances will see a spillover into positive feelings about life in general.
bb bb bb bb bb bb bb bb bb bb bb bb bb bb
3. Summarize what you will accomplish studying personal finance. bb bb bb bb bb bb bb
Answer: Several things can be accomplished by studying personal finance. Recognize how to manage
bb bb bb bb bb bb bb bb bb bb bb bb bb
unexpected and expected financial events. Pay as little as possible in income taxes. Understand how to
bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb
effectively comparison shop for vehicles and homes. Protect what we own. Invest wisely. Accumulate and
bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb
protect the wealth that we may choose to spend during our non-working years (e.g., retirement) or donate.
bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb
4. What are the building blocks to achieving financial success?
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Answer: The building blocks for achieving financial success include a foundation of regular income that
bb bb bb bb bb bb bb bb bb bb bb bb bb bb
provides the means to support your lifestyle and save for desired goals in the future. The foundation
bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb
supports a base of various banking accounts, insurance protection, and employee benefits. Then we can
bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb
establish goals, a recordkeeping system, a budget, and an emergency savings fund. We will also manage
bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb
various expenses such as housing, transportation, insurance, and the payment of taxes. We will also need to
bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb
handle credit, savings, and educational costs. Finally, we invest in various investment alternatives such as
bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb
mutual funds, stocks, and bonds, often for retirement. As a result of all these building blocks, we are more
bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb
apt to have a financially successful life.
bb bb bb bb bb bb bb
LO1.2 Understand how the economy affects your personal financial success.
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1. Summarize the phases of the business cycle. bb bb bb bb bb bb
Answer: The business cycle entails a wavelike pattern of rising and falling economic activity as measured
bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb
by economic indicators like unemployment rates or the gross domestic product. The phases of the business
bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb
cycle include expansion (preferred stage—production is high, unemployment low, interest rates low or
bb bb bb bb bb bb bb bb bb bb bb bb bb
falling, stock market and consumer demand high), peak, contraction, downturn, trough, and recovery.
bb bb bb bb bb bb bb bb bb bb bb bb bb
2. Describe two statistics that help predict the future direction of the economy.
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Answer: Forecasting the state of the economy involves predicting, estimating, or calculating what will
bb bb bb bb bb bb bb bb bb bb bb bb bb
happen in advance. We need to be able to forecast the state of the economy, inflation, and interest rates so
bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb
that we have advance warning of the directions and strength of changes in economic trends since they will
bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb
affect our personal finances. Two statistics we could watch are the consumer confidence index (how
bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb
consumers feel about the economy and their personal finances) and the index of leading economic
bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb
indicators (composite index, averages ten components of economic growth).
bb bb bb bb bb bb bb bb bb
Personal Finance, 14th Edition
bb bb bb
By E. Thomas Garman, Chapter 1 - 17
bb bb bb bb bb bb bb
,TABLE OF CONTENTS bb bb bb
Part I: FINANCIAL PLANNING.
bb bb bb
1. Understanding Personal Finance.
bb bb bb
2. Career Planning.
bb bb
3. Financial Statements, Goals, and Budgets.
bb bb bb bb bb
Part II: MONEY MANAGEMENT.
bb bb bb
4. Managing Income Taxes.
bb bb bb
5. Managing Checking and Savings Accounts.
bb bb bb bb bb
6. Building and Maintaining Good Credit.
bb bb bb bb bb
7. Credit Cards and Consumer Loans.
bb bb bb bb bb
8. Vehicles and Other Major Purchases.
bb bb bb bb bb
9. Obtaining Affordable Housing.
bb bb bb
Part III: INCOME AND ASSET PROTECTION.
bb bb bb bb bb
10. Managing Property and Liability Risk.
bb bb bb bb bb
11. Planning for Health Care Expenses.
bb bb bb bb bb
12. Life Insurance Planning.
bb bb bb
Part IV: INVESTMENTS.
bb bb
13. Investment Fundamentals.
bb bb
14. Investing in Stocks and Bonds.
bb bb bb bb bb
15. Mutual and Exchange-Traded Funds.
bb bb bb bb
16. Real Estate and High-Risk Investments.
bb bb bb bb bb
17. Retirement and Estate Planning.
bb bb bb bb
,SolutionandAnswerGuide bb bb bb
GARMAN/FOX, PERSONAL FINANCE 14E, CHAPTER 1: THINKING LIKE A FINANCIAL PLANNER
B B B B B B B B B B B B B B B B B B B B
TABLE OF CONTENTS BB BB
Answers to Chapter Concept Checks ......................................................................................................... 2
bb bb bb bb
What Do You Recommend Now? ............................................................................................................... 4
bb bb bb bb
Let’s Talk About It ...................................................................................................................................... 5
bb bb bb
Do the Math ................................................................................................................................................. 6
bb bb
Financial Planning Cases ............................................................................................................................ 8
bb bb
Extended Learning .................................................................................................................................... 10
bb
, ANSWERS TO CHAPTER CONCEPT CHECKS BB BB BB BB
LO1.1 Recognize the keys to achieving financial success.
bb bb bb bb bb bb bb
1. Explain the five steps in the financial planning process.
bb bb bb bb bb bb bb bb
Answer: There are five fundamental steps to the personal financial planning process: (1) evaluate your
bb bb bb bb bb bb bb bb bb bb bb bb bb bb
financial health to your education and career choice; (2) define your financial goals; (3) develop a plan of
bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb
action to achieve your goals; (4) implement spending and saving plans to monitor and control progress
bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb
toward your goals; and (5) review your financial progress and make changes as appropriate.
bb bb bb bb bb bb bb bb bb bb bb bb bb bb
2. Distinguish among financial success, financial security, and financial happiness.
bb bb bb bb bb bb bb bb
Answer: Financial success is the achievement of financial aspirations that are desired, planned, or
bb bb bb bb bb bb bb bb bb bb bb bb bb
attempted. Success is defined by the individual or family that seeks it. Financial success may be defined as
bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb
being able to live according to one’s standard of living. Financial security is that comfortable feeling that
bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb
your financial resources will be adequate to fulfill any needs you have as well as your wants. Financial
bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb
happiness is the experience you have when you are satisfied with money matters. People who are happy
bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb
about their finances will see a spillover into positive feelings about life in general.
bb bb bb bb bb bb bb bb bb bb bb bb bb bb
3. Summarize what you will accomplish studying personal finance. bb bb bb bb bb bb bb
Answer: Several things can be accomplished by studying personal finance. Recognize how to manage
bb bb bb bb bb bb bb bb bb bb bb bb bb
unexpected and expected financial events. Pay as little as possible in income taxes. Understand how to
bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb
effectively comparison shop for vehicles and homes. Protect what we own. Invest wisely. Accumulate and
bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb
protect the wealth that we may choose to spend during our non-working years (e.g., retirement) or donate.
bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb
4. What are the building blocks to achieving financial success?
bb bb bb bb bb bb bb bb
Answer: The building blocks for achieving financial success include a foundation of regular income that
bb bb bb bb bb bb bb bb bb bb bb bb bb bb
provides the means to support your lifestyle and save for desired goals in the future. The foundation
bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb
supports a base of various banking accounts, insurance protection, and employee benefits. Then we can
bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb
establish goals, a recordkeeping system, a budget, and an emergency savings fund. We will also manage
bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb
various expenses such as housing, transportation, insurance, and the payment of taxes. We will also need to
bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb
handle credit, savings, and educational costs. Finally, we invest in various investment alternatives such as
bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb
mutual funds, stocks, and bonds, often for retirement. As a result of all these building blocks, we are more
bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb
apt to have a financially successful life.
bb bb bb bb bb bb bb
LO1.2 Understand how the economy affects your personal financial success.
bb bb bb bb bb bb bb bb bb
1. Summarize the phases of the business cycle. bb bb bb bb bb bb
Answer: The business cycle entails a wavelike pattern of rising and falling economic activity as measured
bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb
by economic indicators like unemployment rates or the gross domestic product. The phases of the business
bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb
cycle include expansion (preferred stage—production is high, unemployment low, interest rates low or
bb bb bb bb bb bb bb bb bb bb bb bb bb
falling, stock market and consumer demand high), peak, contraction, downturn, trough, and recovery.
bb bb bb bb bb bb bb bb bb bb bb bb bb
2. Describe two statistics that help predict the future direction of the economy.
bb bb bb bb bb bb bb bb bb bb bb
Answer: Forecasting the state of the economy involves predicting, estimating, or calculating what will
bb bb bb bb bb bb bb bb bb bb bb bb bb
happen in advance. We need to be able to forecast the state of the economy, inflation, and interest rates so
bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb
that we have advance warning of the directions and strength of changes in economic trends since they will
bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb
affect our personal finances. Two statistics we could watch are the consumer confidence index (how
bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb
consumers feel about the economy and their personal finances) and the index of leading economic
bb bb bb bb bb bb bb bb bb bb bb bb bb bb bb
indicators (composite index, averages ten components of economic growth).
bb bb bb bb bb bb bb bb bb
