SOLUTION MANUAL IIll
Personal Finance, 14th Edition
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By E. Thomas Garman, Chapter 1 - 17
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,TABLE OF CONTENTS IIll IIll IIll
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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,Solutionand AnswerGuide Il Il Il
GARMAN/FOX, PERSONAL IILL I I L L FINANCE I I L L 14E, CHAPTER
IILL I I L L 1: THINKING
IILL I I L L LIKE I I L L A I I L L FINANCIAL
PLANNER
I I L L
TABLE OF CONTENTS IILL IILL
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 IILL IILL IILL IILL
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
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your financial health to your education and career choice; (2) define your financial goals; (3) develop
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a plan of action to achieve your goals; (4) implement spending and saving plans to monitor and
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control progress toward your goals; and (5) review your financial progress and make changes as
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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
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defined as being able to live according to one’s standard of living. Financial security is that
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comfortable feeling that your financial resources will be adequate to fulfill any needs you have as
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well as your wants. Financial happiness is the experience you have when you are satisfied with
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money matters. People who are happy about their finances will see a spillover into positive
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feelings about life in general.
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3. Summarize what you will accomplish studying personal finance. IIll IIll IIll IIll IIll IIll IIll
Answer: Several things can be accomplished by studying personal finance. Recognize how to manage
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unexpected and expected financial events. Pay as little as possible in income taxes. Understand how
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to effectively comparison shop for vehicles and homes. Protect what we own. Invest wisely. Accumulate
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and protect the wealth that we may choose to spend during our non-working years (e.g., retirement) or
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donate.
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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
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that provides the means to support your lifestyle and save for desired goals in the future. The
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foundation supports a base of various banking accounts, insurance protection, and employee
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benefits. Then we can establish goals, a recordkeeping system, a budget, and an emergency savings
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fund. We will also manage various expenses such as housing, transportation, insurance, and the
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payment of taxes. We will also need to handle credit, savings, and educational costs. Finally, we
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invest in various investment alternatives such as mutual funds, stocks, and bonds, often for
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retirement. As a result of all these building blocks, we are more apt to have a financially
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successful life.
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LO1.2 Understand how the economy affects your personal financial success.
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1. Summarize the phases of the business cycle. IIll IIll IIll IIll IIll IIll
Answer: The business cycle entails a wavelike pattern of rising and falling economic activity as
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measured by economic indicators like unemployment rates or the gross domestic product. The phases
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of the business cycle include expansion (preferred stage—production is high, unemployment low,
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interest rates low or falling, stock market and consumer demand high), peak, contraction, downturn,
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trough, and recovery.
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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
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will happen in advance. We need to be able to forecast the state of the economy, inflation, and
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