Solution Manual for Personal Finance 14th Edition by Garman & Forgue | Complete Answers & Case Solutions,,

SolutionMandMAnswerMGuide:MGarman/Fox,MPersonalMFinanceM14e,MChapterM1:MThinkingMLikeMaMFinancia
lMPlanner



Solution and Answer Guide M M M


GARMAN/FOX,M PERSONALM FINANCEM 14E,M CHAPTERM 1:M THINKINGM LIKEM AM FINANCIALM PLANNER


TABLE OF CONTENTSM M




AnswersMtoMChapterMConceptMChecks ..................................................................................................... 2
WhatMDoMYouMRecommendMNow? ........................................................................................................... 4
Let’sMTalkMAboutMIt ................................................................................................................................... 5
DoMtheMMath................................................................................................................................................ 6
FinancialMPlanningMCases .......................................................................................................................... 8
ExtendedMLearning ................................................................................................................................... 10




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, SolutionMandMAnswerMGuide:MGarman/Fox,MPersonalMFinanceM14e,MChapterM1:MThinkingMLikeMaMFinancia
lMPlanner


ANSWERS TO CHAPTER CONCEPT CHECKS
M M M M




LO1.1MRecognizeMtheMkeysMtoMachievingMfinancialMsuccess.
1. ExplainMtheMfiveMstepsMinMtheMfinancialMplanningMprocess.
Answer:MThereMareMfiveMfundamentalMstepsMtoMtheMpersonalMfinancialMplanningMprocess:M(1)MevaluateMy
ourMfinancialMhealthMtoMyourMeducationMandMcareerMchoice;M(2)MdefineMyourMfinancialMgoals;M(3)Mdevelop
MaMplanMofMactionMtoMachieveMyourMgoals;M(4)MimplementMspendingMandMsavingMplansMtoMmonitorMandMco

ntrolMprogressMtowardMyourMgoals;MandM(5)MreviewMyourMfinancialMprogressMandMmakeMchangesMasMappr
opriate.

2. DistinguishMamongMfinancialMsuccess,MfinancialMsecurity,MandMfinancialMhappiness.

Answer:MFinancialMsuccessMisMtheMachievementMofMfinancialMaspirationsMthatMareMdesired,Mplanned,MorM
attempted.MSuccessMisMdefinedMbyMtheMindividualMorMfamilyMthatMseeksMit.MFinancialMsuccessMmayMbeMdef
inedMasMbeingMableMtoMliveMaccordingMtoMone’sMstandardMofMliving.MFinancialMsecurityMisMthatMcomfortab
leMfeelingMthatMyourMfinancialMresourcesMwillMbeMadequateMtoMfulfillManyMneedsMyouMhaveMasMwellMasMyou
rMwants.MFinancialMhappinessMisMtheMexperienceMyouMhaveMwhenMyouMareMsatisfiedMwithMmoneyMmatter
s.MPeopleMwhoMareMhappyMaboutMtheirMfinancesMwillMseeMaMspilloverMintoMpositiveMfeelingsMaboutMlifeMin
Mgeneral.



3. SummarizeMwhatMyouMwillMaccomplishMstudyingMpersonalMfinance.
Answer:MSeveralMthingsMcanMbeMaccomplishedMbyMstudyingMpersonalMfinance.MRecognizeMhowMtoMmanageM
unexpectedMandMexpectedMfinancialMevents.MPayMasMlittleMasMpossibleMinMincomeMtaxes.MUnderstandMhowMto
MeffectivelyMcomparisonMshop MforMvehiclesMandMhomes.MProtectMwhatMweMown.MInvestMwisely.MAccumulate

MandMprotectMtheM wealthMthatMweMmayMchooseMtoMspendMduringMourMnon-

workingMyearsM(e.g.,Mretirement)MorMdonate.

4. WhatMareMtheMbuildingMblocksMtoMachievingMfinancialMsuccess?
Answer:MTheMbuildingMblocksMforMachievingMfinancialMsuccessMincludeMaMfoundationMofMregularMincome
MthatMprovides MtheMmeansMtoMsupportMyourMlifestyleMandMsaveMforMdesiredMgoalsMinMtheMfuture.MTheMfoun

dationMsupportsMaMbaseMofMvariousMbankingMaccounts,MinsuranceMprotection,MandMemployeeMbenefits.MTh
enMweMcanMestablishMgoals,MaMrecordkeepingMsystem,MaMbudget,MandManMemergencyMsavingsMfund.MWeM
willMalsoMmanageMvariousMexpensesMsuchMasMhousing,Mtransportation,Minsurance,MandMtheMpaymentMofMta
xes.MWeMwillMalsoMneedMtoMhandleMcredit,Msavings,MandMeducationalMcosts.MFinally,MweMinvestMinMvarious
MinvestmentMalternativesMsuchMasMmutualMfunds,Mstocks,MandMbonds,MoftenMforMretirement.MAsMaMresultMo

fMallMtheseMbuildingMblocks,MweMareMmoreMaptMtoMhaveMaMfinanciallyMsuccessfulMlife.

LO1.2MUnderstandMhowMtheMeconomyMaffectsMyourMpersonalMfinancialMsuccess.
1. SummarizeMtheMphasesMofMtheMbusinessMcycle.
Answer:MTheMbusinessMcycleMentailsMaMwavelikeMpatternMofMrisingMandMfallingMeconomicMactivityMasMm
easuredMbyMeconomicMindicatorsMlikeMunemploymentMratesMorMtheMgrossMdomesticMproduct.MTheMphasesM
ofMtheMbusinessMcycleMincludeMexpansionM(preferredMstage—
productionMisMhigh,MunemploymentMlow,MinterestMratesMlowMorMfalling,MstockMmarketMandMconsumerMde
mandMhigh),Mpeak,Mcontraction,Mdownturn,Mtrough,MandMrecovery.

2. DescribeMtwoMstatisticsMthatMhelpMpredictMtheMfutureMdirectionMofMtheMeconomy.
Answer:MForecastingMtheMstateMofMtheMeconomyMinvolvesMpredicting,Mestimating,MorMcalculatingMwhatMw
illMhappenMinMadvance.MWeMneedMtoMbeMableMtoMforecastMtheMstateMofMtheMeconomy,Minflation,MandMintere
stMratesMsoMthatMweMhaveMadvanceMwarningMofMtheMdirectionsMandMstrengthMofMchangesMinMeconomicMtren
dsMsinceMtheyMwillMaffectMourMpersonalMfinances.MTwoMstatisticsMweMcouldMwatchMareMtheMconsumerMconf

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lyMaccessible
website,MinMwholeMorMinMpart.

, SolutionMandMAnswerMGuide:MGarman/Fox,MPersonalMFinanceM14e,MChapterM1:MThinkingMLikeMaMFinancia
lMPlanner
idenceMindexM(howMconsumersMfeelMaboutMtheMeconomyMandMtheirMpersonalMfinances)MandMtheMindexMofM
leadingMeconomicMindicatorsM(compositeMindex,MaveragesMtenMcomponentsMofMeconomicMgrowth).




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, SolutionMandMAnswerMGuide:MGarman/Fox,MPersonalMFinanceM14e,MChapterM1:MThinkingMLikeMaMFinancia
lMPlanner

3. GiveManMexampleMofMhowMinflationMaffectsMincomeMandMconsumption.
Answer:MInflationMreducesMtheMpurchasingMpowerMofMtheMdollar.MThisMmeansMthatMourMincomeMwillMnot
MgoMasMfarMand,Mthus,MinMrealMtermsMwillMbeMloweredMbyMinflation.MBecauseMitemsMcostMmore,M weM willM

haveMtoMconsumeMlessMandMmayMcutMbackMonMsomeMexpendituresMtoMbeMableMtoMaffordMthoseMwithMaMhig
herMpriority.

LO1.3MThinkMlikeManMeconomistMwhenMmakingMfinancialMdecisions.
1. DefineMopportunityMcostMandMgiveManMexampleMofMhowMopportunityMcostsMmightMaffectMyourMfi
nancialMdecisionMmaking.
Answer:MTheMopportunityMcostMofMaMdecisionMisMmeasuredMasMtheMvalueMofMtheMnext-
bestMalternativeMthatMmustMbeMforgone.MIfMwe,MforMexample,MputMourMretirementMsavingsMinMaMregularMsa
vingsMaccountMinsteadMofMinMaMtax-
MshelteredMretirementMaccount, MweMmayMbeMforgoingMtheMtaxMbenefitsMassociatedMwithMinvestingMinMretir

ementMaccountsMsuchMasMIRAsMorM401(k)Mplans.MInManotherMexample,MifMweMdecideMtoMborrowMtheMmax
imumMstudentMloanMamountMforMwhichMweMqualifyMtoMliveMaMbitMmoreMcomfortablyMwhileMinMcollege,Mw
eMwillMnotMbeMableMtoMliveMasMnicely,MsaveMasMmuchMforMtheMdownMpaymentMonMaMhomeMorMsaveMforMre
tirementMonceMweMgraduateMbecauseMofMtheMhigherMloanMpayments.

2. ExplainMandMgiveManMexampleMofMhowM marginalMutilityMandMmarginalMcostMmakeMsomeMfi
nancialMdecisionsMeasier.
Answer:MMarginalManalysisMfocusesMonMtheMnextMincrementMofMusefulnessMorMcostMwhenMmakingMfinanci
alMdecisions.MMarginalMutilityMisMtheMextraMsatisfactionMderivedMfromMhavingMoneMmoreMincrementalMuni
tMofMaMproductMorMservice.MMarginalMcostMisMtheMadditionalMcostMofMthatMunit.MWhenMmarginalM utilityMe
xceedsMmarginalMcost,MandMweMcompareMtheMtwo,MweMcanMmakeMbetterMfinancialMdecisions.MAsManMexam
ple,MifMyouMmustMflyMtoMsomeMdestination,MisMtheMmarginalMcostMofMcheckingMaMbagMusingMaMcarry-
onMworthMtheMmarginalMutility?

3. DescribeMandMgiveManMexampleMofMhowMyourMmarginalMincomeMtaxMrateMcanMaffectMfinancialM
decisionMmaking.

Answer:MAsMourMincomeMrises,MweMwillMfindMourselvesMinMhigherMandMhigherMtaxMbrackets.MOneMtypeMo
fMdecisionMthatMisMaffectedMbyMincomeMtaxesMisMhowMweMshouldMinvestMforMretirement.MWeMmightMwantMt
oMinvestMthroughMaM401(k)MplanMinsteadMofMkeepingMourMretirementMmoneyMinMaMsavingsMaccount,Mwhich
MisMtaxable.

SinceMmostMtypesMofMincomeMareMtaxable,MitMisMimportantMthatMweMunderstandMtheMimpactMofMincomeM
taxesMonMfinancialMdecisions.MOfMparticularMimportanceMisMtheMmarginalMtaxMrateM(theMtaxMrateMatMwhic
hMourMlastMdollarMearnedMisMtaxed).MIfMweMareMinMtheM25MpercentMmarginalMtaxMbracket,MweMwillMgetMt
oMkeepM75MpercentM(100MpercentMminusM25Mpercent)MofMourMlastMtaxableMdollarMearned.MIfMtheMincome
MisMtax-

freeMincome,MonMtheMotherMhand,MweMwouldMgetMtoMkeepM100MpercentMofMit.MTherefore,MitMisMimportant
MtoMknowMourMmarginalMtaxMrateMasMwellMasMwhatMtypesMofMincomeMareMsubjectMtoMfederalMincome Mta

xes.MItMisMalsoMimportantMtoMrememberMtheMimpactMofMstateMincomeMtaxesMandMSocialMSecurityMtaxes.

LO1.4MPerformMtimeMvalueMofMmoneyMcalculationsMinMpersonalMfinancialMdecisionMmaking.
1. WhatMareMtheMtwoMcommonMquestionsMaboutMmoney?
Answer:MTheMtwoMcommonMquestionsMaboutMmoneyMareMitsMfutureMvalueMandMpresentMvalue.MFutureM
valueMisMwhatMinvestmentMorMseriesMofMinvestmentsMwillMbeMatMaMpointMinMtheMfuture.MPresentMvalueMi
sMhowMmuchMweMwouldMneedMtoMinvestMtodayMand/orMinMaMseriesMofMfutureMinvestmentsM toMprovideMso
meMamountMinMtheMfuture.

2. ExplainMtheMdifferenceMbetweenMsimpleMinterestMandMcompoundMinterest,MandMdescribeMwh

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