SOLUTION MANUAL
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Personal Finance, 14th Edition
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By E. Thomas Garman, Chapter 1 - 17
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,TABLEOFCONTENTS
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Partk I:k FINANCIALkPLANNING.
1. UnderstandingkPersonalkFinance.
2. Careerk Planning.
3. FinancialkStatements,kGoals,kandkBudgets.k
PartkII:kMONEYkMANAGEMENT.
4. ManagingkIncomekTaxes.
5. ManagingkCheckingkandkSavingsk Accounts.
6. Buildingk andkMaintainingk GoodkCredit.
7. Creditk Cardsk andkConsumerk Loans.
8. VehicleskandkOtherk Majork Purchases.
9. ObtainingkAffordablekHousing.
PartkIII:k INCOMEk ANDk ASSETkPROTECTION.
10. ManagingkPropertyk andkLiabilityk Risk.
11. Planningkfork Healthk Carek Expenses.
12. LifekInsurancekPlanning.k
PartkIV:kINVESTMENTS.
13. InvestmentkFundamentals.
,14. InvestingkinkStocksk andk Bonds.
15. MutualkandkExchange-TradedkFunds.
16. Realk EstatekandkHigh-Riskk Investments.
17. Retirementk andkEstatek Planning.
SolutionandAnswerGuide
GARMAN/FOX,K PERSONAL FINANCE 14E,K CHAPTER 1:K THINKING LIKE AK K FINANCIAL PLANNER
TABLE OF CONTENTS
K K K
Answersk tok Chapterk Conceptk Checks......................................................................................... 2
Whatk Dok Youk Recommendk Now? .............................................................................................. 4
Let’sk Talkk Aboutk It........................................................................................................................ 5
Dok thek Math .................................................................................................................................. 6
Financialk Planningk Cases............................................................................................................... 8
Extendedk Learning ...................................................................................................................... 10
, ANSWERS TO CHAPTER CONCEPT CHECKS
K K K K
LO1.1k Recognizek thek keysk tok achievingk financialk success.
1. Explaink thek fivek stepsk ink thek financialk planningk process.
Answer:k Therek arek fivek fundamentalk stepsk tok thek personalk financialk planningk process:k (1)k
evaluatek yourk financialk healthk tok yourk educationk andk careerk choice;k (2)k definek yourk financi
alkgoals;k (3)k developk ak plank ofk actionk tok achievek yourk goals;k (4)k implementk spendingk and
ksavingk plansk tok monitork andk controlk progressk towardk yourk goals;k andk (5)k reviewk yourkfin
ancialk progressk andk makek changesk ask appropriate.
2. Distinguishkamongkfinancialk success,kfinancialksecurity,k andkfinancialkhappiness.kAns
wer:k Financialk successk isk thek achievementk ofk financialk aspirationsk thatk arek desired,
planned,k ork attempted.k Successk isk definedk byk thek individualk ork familyk thatk seeksk it.k Financial
successk mayk bek definedk ask beingk ablek tok livek accordingk tok one’sk standardk ofk living.kFin
ancialk securityk isk thatk comfortablek feelingk thatk yourk financialk resourcesk willk bekadequat
ek tok fulfillk anyk needsk youk havek ask wellk ask yourk wants.k Financialk happinessk isk thekexpe
riencek youk havek whenk youk arek satisfiedk withk moneyk matters.k Peoplek whok arek happykab
outk theirk financesk willk seek ak spilloverk intok positivek feelingsk aboutk lifek ink general.
3. Summarizek whatk youk willk accomplishk studyingk personalk finance.
Answer:k Severalk thingsk cank bek accomplishedk byk studyingk personalk finance.k Recognizek howk t
okmanagek unexpectedk andk expectedk financialk events.k Payk ask littlek ask possiblek ink incomek tax
es.kUnderstandk howk tok effectivelykcomparisonk shopk fork vehiclesk andk homes.k Protectk whatk we
k own.kInvestk wisely.k Accumulatek andk protectk thek wealthk thatk wek mayk choosek tok spendk durin
gk ourknon-workingk yearsk(e.g.,kretirement)korkdonate.
4. Whatk arek thek buildingk blocksk tok achievingk financialk success?
Answer:k Thek buildingk blocksk fork achievingk financialk successk includek ak foundationk ofkreg
ulark incomek thatk providesk thek meansk tok supportk yourk lifestylek andk savek fork desiredkgo
alsk ink thek future.k Thek foundationk supportsk ak basek ofk variousk bankingk accounts,
insurancek protection,k andk employeek benefits.k Thenk wek cank establishk goals,k ak recordkeepi
ngksystem,k ak budget,k andk ank emergencyk savingsk fund.k Wek willk alsok managek variousk expe
nsesksuchk ask housing,k transportation,k insurance,k andk thek paymentk ofk taxes.k Wek willk alsok n
eedk tokhandlek credit,k savings,k andk educationalk costs.k Finally,k wek investk ink variousk investm
entkalternativesk suchk ask mutualk funds,k stocks,k andk bonds,k oftenk fork retirement.k Ask ak res
ultk ofkallk thesek buildingk blocks,k wek arek morek aptk tok havek ak financiallyk successfulk life.
LO1.2k Understandk howk thek economyk affectsk yourk personalk financialk success.
1. Summarizek thek phasesk ofk thek businessk cycle.
Answer:k Thek businessk cyclek entailsk ak wavelikek patternk ofk risingk andk fallingk economic
activityk ask measuredk byk economick indicatorsk likek unemploymentk ratesk ork thek grossk domestic
k
ii
Personal Finance, 14th Edition
k
ii k
ii k
ii
By E. Thomas Garman, Chapter 1 - 17
k
ii k
ii ii k
ii k
ii k
ii k
ii
,TABLEOFCONTENTS
k k
Partk I:k FINANCIALkPLANNING.
1. UnderstandingkPersonalkFinance.
2. Careerk Planning.
3. FinancialkStatements,kGoals,kandkBudgets.k
PartkII:kMONEYkMANAGEMENT.
4. ManagingkIncomekTaxes.
5. ManagingkCheckingkandkSavingsk Accounts.
6. Buildingk andkMaintainingk GoodkCredit.
7. Creditk Cardsk andkConsumerk Loans.
8. VehicleskandkOtherk Majork Purchases.
9. ObtainingkAffordablekHousing.
PartkIII:k INCOMEk ANDk ASSETkPROTECTION.
10. ManagingkPropertyk andkLiabilityk Risk.
11. Planningkfork Healthk Carek Expenses.
12. LifekInsurancekPlanning.k
PartkIV:kINVESTMENTS.
13. InvestmentkFundamentals.
,14. InvestingkinkStocksk andk Bonds.
15. MutualkandkExchange-TradedkFunds.
16. Realk EstatekandkHigh-Riskk Investments.
17. Retirementk andkEstatek Planning.
SolutionandAnswerGuide
GARMAN/FOX,K PERSONAL FINANCE 14E,K CHAPTER 1:K THINKING LIKE AK K FINANCIAL PLANNER
TABLE OF CONTENTS
K K K
Answersk tok Chapterk Conceptk Checks......................................................................................... 2
Whatk Dok Youk Recommendk Now? .............................................................................................. 4
Let’sk Talkk Aboutk It........................................................................................................................ 5
Dok thek Math .................................................................................................................................. 6
Financialk Planningk Cases............................................................................................................... 8
Extendedk Learning ...................................................................................................................... 10
, ANSWERS TO CHAPTER CONCEPT CHECKS
K K K K
LO1.1k Recognizek thek keysk tok achievingk financialk success.
1. Explaink thek fivek stepsk ink thek financialk planningk process.
Answer:k Therek arek fivek fundamentalk stepsk tok thek personalk financialk planningk process:k (1)k
evaluatek yourk financialk healthk tok yourk educationk andk careerk choice;k (2)k definek yourk financi
alkgoals;k (3)k developk ak plank ofk actionk tok achievek yourk goals;k (4)k implementk spendingk and
ksavingk plansk tok monitork andk controlk progressk towardk yourk goals;k andk (5)k reviewk yourkfin
ancialk progressk andk makek changesk ask appropriate.
2. Distinguishkamongkfinancialk success,kfinancialksecurity,k andkfinancialkhappiness.kAns
wer:k Financialk successk isk thek achievementk ofk financialk aspirationsk thatk arek desired,
planned,k ork attempted.k Successk isk definedk byk thek individualk ork familyk thatk seeksk it.k Financial
successk mayk bek definedk ask beingk ablek tok livek accordingk tok one’sk standardk ofk living.kFin
ancialk securityk isk thatk comfortablek feelingk thatk yourk financialk resourcesk willk bekadequat
ek tok fulfillk anyk needsk youk havek ask wellk ask yourk wants.k Financialk happinessk isk thekexpe
riencek youk havek whenk youk arek satisfiedk withk moneyk matters.k Peoplek whok arek happykab
outk theirk financesk willk seek ak spilloverk intok positivek feelingsk aboutk lifek ink general.
3. Summarizek whatk youk willk accomplishk studyingk personalk finance.
Answer:k Severalk thingsk cank bek accomplishedk byk studyingk personalk finance.k Recognizek howk t
okmanagek unexpectedk andk expectedk financialk events.k Payk ask littlek ask possiblek ink incomek tax
es.kUnderstandk howk tok effectivelykcomparisonk shopk fork vehiclesk andk homes.k Protectk whatk we
k own.kInvestk wisely.k Accumulatek andk protectk thek wealthk thatk wek mayk choosek tok spendk durin
gk ourknon-workingk yearsk(e.g.,kretirement)korkdonate.
4. Whatk arek thek buildingk blocksk tok achievingk financialk success?
Answer:k Thek buildingk blocksk fork achievingk financialk successk includek ak foundationk ofkreg
ulark incomek thatk providesk thek meansk tok supportk yourk lifestylek andk savek fork desiredkgo
alsk ink thek future.k Thek foundationk supportsk ak basek ofk variousk bankingk accounts,
insurancek protection,k andk employeek benefits.k Thenk wek cank establishk goals,k ak recordkeepi
ngksystem,k ak budget,k andk ank emergencyk savingsk fund.k Wek willk alsok managek variousk expe
nsesksuchk ask housing,k transportation,k insurance,k andk thek paymentk ofk taxes.k Wek willk alsok n
eedk tokhandlek credit,k savings,k andk educationalk costs.k Finally,k wek investk ink variousk investm
entkalternativesk suchk ask mutualk funds,k stocks,k andk bonds,k oftenk fork retirement.k Ask ak res
ultk ofkallk thesek buildingk blocks,k wek arek morek aptk tok havek ak financiallyk successfulk life.
LO1.2k Understandk howk thek economyk affectsk yourk personalk financialk success.
1. Summarizek thek phasesk ofk thek businessk cycle.
Answer:k Thek businessk cyclek entailsk ak wavelikek patternk ofk risingk andk fallingk economic
activityk ask measuredk byk economick indicatorsk likek unemploymentk ratesk ork thek grossk domestic
