Personal Finance (14th Edition) – E. Thomas Garman – Complete Solution Manual for Chapters 1–17

SOLUTION MANUAL
Personal Finance, 14th Edition
By E. Thomas Garman, Chapter 1 - 17

,TABLE OF CONTENTS qy qy qy




Part I: FINANCIAL PLANNING.
qy qy qy




1. Understanding Personal Finance.
qy qy qy




2. Career Planning.
qy qy




3. Financial Statements, Goals, and Budgets.
qy qy qy qy qy




Part II: MONEY MANAGEMENT.
qy qy qy




4. Managing Income Taxes.
qy qy qy




5. Managing Checking and Savings Accounts.
qy qy qy qy qy




6. Building and Maintaining Good Credit.
qy qy qy qy qy




7. Credit Cards and Consumer Loans.
qy qy qy qy qy




8. Vehicles and Other Major Purchases.
qy qy qy qy qy




9. Obtaining Affordable Housing.
qy qy qy




Part III: INCOME AND ASSET PROTECTION.
qy qy qy qy qy




10. Managing Property and Liability Risk.
qy qy qy qy qy




11. Planning for Health Care Expenses.
qy qy qy qy qy




12. Life Insurance Planning.
qy qy qy




Part IV: INVESTMENTS.
qy qy




13. Investment Fundamentals.
qy qy




14. Investing in Stocks and Bonds.
qy qy qy qy qy




15. Mutual and Exchange-Traded Funds.
qy qy qy qy




16. Real Estate and High-Risk Investments.
qy qy qy qy qy




17. Retirement and Estate Planning.
qy qy qy qy

,Solution and Answer Guide qy qy qy




GARMAN/FOX, PERSONAL FINANCE 14E, CHAPTER 1: THINKING LIKE A FINANCIAL PLANNER
QY Q Y Q Y QY Q Y QY Q Y Q Y Q Y Q Y




TABLE OF CONTENTS QY QY




Answers to Chapter Concept Checks ........................................................................................................ 2
qy qy qy qy




What Do You Recommend Now? .............................................................................................................. 4
qy qy qy qy




Let’s Talk About It ..................................................................................................................................... 5
qy qy qy




Do the Math ................................................................................................................................................. 6
qy qy




Financial Planning Cases ............................................................................................................................ 8
qy qy




Extended Learning .................................................................................................................................... 10
qy

, ANSWERS TO CHAPTER CONCEPT CHECKS QY QY QY QY




LO1.1 Recognize the keys to achieving financial success.
qy qy qy qy qy qy qy



1. Explain the five steps in the financial planning process.
qy qy qy qy qy qy qy qy




Answer: There are five fundamental steps to the personal financial planning process: (1) evaluate your fi
qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy



nancial health to your education and career choice; (2) define your financial goals; (3) develop a plan of a
qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy



ction to achieve your goals; (4) implement spending and saving plans to monitor and control progress to
qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy



ward your goals; and (5) review your financial progress and make changes as appropriate.
qy qy qy qy qy qy qy qy qy qy qy qy qy




2. Distinguish among financial success, financial security, and financial happiness.
qy qy qy qy qy qy qy qy




Answer: Financial success is the achievement of financial aspirations that are desired, planned, or attem
qy qy qy qy qy qy qy qy qy qy qy qy qy qy



pted. Success is defined by the individual or family that seeks it. Financial success may be defined as bein
qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy



g able to live according to one’s standard of living. Financial security is that comfortable feeling that yo
qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy



ur financial resources will be adequate to fulfill any needs you have as well as your wants. Financial ha
qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy



ppiness is the experience you have when you are satisfied with money matters. People who are happy ab
qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy



out their finances will see a spillover into positive feelings about life in general.
qy qy qy qy qy qy qy qy qy qy qy qy qy




3. Summarize what you will accomplish studying personal finance.qy qy qy qy qy qy qy




Answer: Several things can be accomplished by studying personal finance. Recognize how to manage unex
qy qy qy qy qy qy qy qy qy qy qy qy qy qy



pected and expected financial events. Pay as little as possible in income taxes. Understand how to effectivel
qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy



y comparison shop for vehicles and homes. Protect what we own. Invest wisely. Accumulate and protect the
qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy



wealth that we may choose to spend during our non-working years (e.g., retirement) or donate.
qy qy qy qy qy qy qy qy qy qy qy qy qy qy




4. What are the building blocks to achieving financial success?
qy qy qy qy qy qy qy qy




Answer: The building blocks for achieving financial success include a foundation of regular income that
qy qy qy qy qy qy qy qy qy qy qy qy qy qy q



provides the means to support your lifestyle and save for desired goals in the future. The foundation sup
y qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy



ports a base of various banking accounts, insurance protection, and employee benefits. Then we can esta
qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy



blish goals, a recordkeeping system, a budget, and an emergency savings fund. We will also manage vari
qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy



ous expenses such as housing, transportation, insurance, and the payment of taxes. We will also need to h
qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy



andle credit, savings, and educational costs. Finally, we invest in various investment alternatives such as
qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy



mutual funds, stocks, and bonds, often for retirement. As a result of all these building blocks, we are mor
qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy



e apt to have a financially successful life.
qy qy qy qy qy qy qy




LO1.2 Understand how the economy affects your personal financial success.
qy qy qy qy qy qy qy qy qy



1. Summarize the phases of the business cycle. qy qy qy qy qy qy




Answer: The business cycle entails a wavelike pattern of rising and falling economic activity as measure
qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy



d by economic indicators like unemployment rates or the gross domestic product. The phases of the busin
qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy



ess cycle include expansion (preferred stage—
qy qy qy qy qy



production is high, unemployment low, interest rates low or falling, stock market and consumer demand
qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy



high), peak, contraction, downturn, trough, and recovery.
qy qy qy qy qy qy




2. Describe two statistics that help predict the future direction of the economy.
qy qy qy qy qy qy qy qy qy qy qy




Answer: Forecasting the state of the economy involves predicting, estimating, or calculating what will h
qy qy qy qy qy qy qy qy qy qy qy qy qy qy



appen in advance. We need to be able to forecast the state of the economy, inflation, and interest rates so
qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy



that we have advance warning of the directions and strength of changes in economic trends since they will
qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy



affect our personal finances. Two statistics we could watch are the consumer confidence index (how con
qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy



sumers feel about the economy and their personal finances) and the index of leading economic indicators
qy qy qy qy qy qy qy qy qy qy qy qy qy qy qy q



y(composite index, averages ten components of economic growth).
qy qy qy qy qy qy qy