Solution Manual for Personal Finance, 14th Edition by E. Thomas Garman and Raymond E. Forgue

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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,TABLE OF CONTENTS u u u




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.
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Solution and Answer Guide u u u


GARMAN/FOX, PERSONAL FINANCE 14E, CHAPTER 1: THINKING LIKE A FINANCIAL PLANNER
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TABLE OF CONTENTS
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AnswersutouChapteruConceptuChecks ........................................................................................... 2
WhatuDouYouuRecommenduNow? ................................................................................................. 4
Let’suTalkuAboutuIt......................................................................................................................................................... 5
DoutheuMath ................................................................................................................................... 6
FinancialuPlanninguCases ............................................................................................................... 8
ExtendeduLearning....................................................................................................................... 10

, ANSWERS TO CHAPTER CONCEPT CHECKS
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LO1.1uRecognizeutheukeysutouachievingufinancialusuccess.
1. Explainutheufiveustepsuinutheufinancialuplanninguprocess.

Answer:uThereuareufiveufundamentalustepsutoutheupersonalufinancialuplanninguprocess:u(1)uevaluate
uyourufinancialuhealthutouyourueducationuanducareeruchoice;u(2)udefineuyourufinancialugoals;u(3)udeve

lopuauplanuofuactionutouachieveuyourugoals;u(4)uimplementuspendinguandusavinguplansutoumonitorua
nducontroluprogressutowarduyourugoals;uandu(5)ureviewuyourufinancialuprogressuandumakeuchangesu
asuappropriate.

2. Distinguishuamongufinancialusuccess,ufinancialusecurity,uandufinancialuhappiness.

Answer:uFinancialusuccessuisutheuachievementuofufinancialuaspirationsuthatuareudesired,uplanned,u
oruattempted.uSuccessuisudefinedubyutheuindividualuorufamilyuthatuseeksuit.uFinancialusuccessumayube
udefineduasubeinguableutouliveuaccordingutouone’sustandarduofuliving.uFinancialusecurityuisuthatucom

fortableufeelinguthatuyourufinancialuresourcesuwillubeuadequateutoufulfilluanyuneedsuyouuhaveuasuwell
uasuyouruwants.uFinancialuhappinessuisutheuexperienceuyouuhaveuwhenuyouuareusatisfieduwithumon

eyumatters.uPeopleuwhouareuhappyuaboututheirufinancesuwilluseeuauspilloveruintoupositiveufeelingsua
boutulifeuinugeneral.

3. Summarizeuwhatuyouuwilluaccomplishustudyingupersonalufinance.

Answer:uSeveraluthingsucanubeuaccomplishedubyustudyingupersonalufinance.uRecognizeuhowutoumana
geuunexpecteduanduexpectedufinancialuevents.uPayuasulittleuasupossibleuinuincomeutaxes.uUnderstanduh
owutoueffectivelyucomparisonushopuforuvehiclesuanduhomes.uProtectuwhatuweuown.uInvestuwisely.uAccu
mulateuanduprotectutheuwealthuthatuweumayuchooseutouspenduduringuourunon-
workinguyearsu(e.g.,uretirement)uorudonate.

4. Whatuareutheubuildingublocksutouachievingufinancialusuccess?

Answer:uTheubuildingublocksuforuachievingufinancialusuccessuincludeuaufoundationuofuregularuinco
meuthatuprovidesutheumeansutousupportuyourulifestyleuandusaveuforudesiredugoalsuinutheufuture.uThe
ufoundationusupportsuaubaseuofuvariousubankinguaccounts,uinsuranceuprotection,uanduemployeeube

nefits.uThenuweucanuestablishugoals,uaurecordkeepingusystem,uaubudget,uanduanuemergencyusavings
ufund.uWeuwillualsoumanageuvariousuexpensesusuchuasuhousing,utransportation,uinsurance,uandutheu

paymentuofutaxes.uWeuwillualsouneedutouhandleucredit,usavings,uandueducationalucosts.uFinally,uweuin
vestuinuvariousuinvestmentualternativesusuchuasumutualufunds,ustocks,uandubonds,uoftenuforuretirem
ent.uAsuauresultuofuallutheseubuildingublocks,uweuareumoreuaptutouhaveuaufinanciallyusuccessfululife.

LO1.2uUnderstanduhowutheueconomyuaffectsuyourupersonalufinancialusuccess.
1. Summarizeutheuphasesuofutheubusinessucycle.

Answer:uTheubusinessucycleuentailsuauwavelikeupatternuofurisinguandufallingueconomicuactivityuasum
easuredubyueconomicuindicatorsulikeuunemploymenturatesuorutheugrossudomesticuproduct.uTheupha
sesuofutheubusinessucycleuincludeuexpansionu(preferredustage—