SOLUTION MANUAL
Personal Finance, 14th Edition
By E. Thomas Garman, Chapter 1 - 17
,TABLE OF CONTENTS iv iv iv
Part I: FINANCIAL PLANNING.
iv iv iv
1. Understanding Personal Finance.
iv iv iv
2. Career Planning.
iv iv
3. Financial Statements, Goals, and Budgets.
iv iv iv iv iv
Part II: MONEY MANAGEMENT.
iv iv iv
4. Managing Income Taxes.
iv iv iv
5. Managing Checking and Savings Accounts.
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6. Building and Maintaining Good Credit.
iv iv iv iv iv
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 iv iv iv
GARMAN/FOX, PERSONAL F INANCE 14E, CHAPTER 1: THINKING LIKE A F INANCIAL PLANNER
IV I V I V IV I V IV I V I V I V I V
TABLE OF CONTENTS IV IV
Answers to Chapter Concept Checks .................................................................................................... 2
iv iv iv iv
What Do You Recommend Now?.......................................................................................................... 4
iv iv iv iv
Let’s Talk About It ................................................................................................................................ 5
iv iv iv
Do the Math ........................................................................................................................................... 6
iv iv
Financial Planning Cases ....................................................................................................................... 8
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Extended Learning .............................................................................................................................. 10
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, ANSWERS TO CHAPTER CONCEPT CHECKS
IV IV IV IV
LO1.1 Recognize the keys to achieving financial success.
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1. Explainivtheivfiveivstepsivinivtheivfinancialivplanningivprocess.
Answer:ivThereivareivfiveivfundamentalivstepsivtoivtheivpersonalivfinancialivplanningivprocess:iv(1)ivevaluateivyourivf
inancialivhealthivtoivyouriveducationivandivcareerivchoice;iv(2)ivdefineivyourivfinancialivgoals;iv(3)ivdevelopivaivplanivofiv
actionivtoivachieveivyourivgoals;iv(4)ivimplementivspendingivandivsavingivplansivtoivmonitorivandivcontrolivprogressivt
owardivyourivgoals;ivandiv(5)ivreviewivyourivfinancialivprogressivandivmakeivchangesivasivappropriate.
2. Distinguishivamongivfinancialivsuccess,ivfinancialivsecurity,ivandivfinancialivhappiness.
Answer:ivFinancialivsuccessivisivtheivachievementivofivfinancialivaspirationsivthativareivdesired,ivplanned,ivorivattem
pted.ivSuccessivisivdefinedivbyivtheivindividualivorivfamilyivthativseeksivit.ivFinancialivsuccessivmayivbeivdefinedivasivbein
givableivtoivliveivaccordingivtoivone’sivstandardivofivliving.ivFinancialivsecurityivisivthativcomfortableivfeelingivthativyo
urivfinancialivresourcesivwillivbeivadequateivtoivfulfillivanyivneedsivyouivhaveivasivwellivasivyourivwants.ivFinancialivha
ppinessivisivtheivexperienceivyouivhaveivwhenivyouivareivsatisfiedivwithivmoneyivmatters.ivPeopleivwhoivareivhappyiva
boutivtheirivfinancesivwillivseeivaivspilloverivintoivpositiveivfeelingsivaboutivlifeivinivgeneral.
3. Summarizeivwhativyouivwillivaccomplishivstudyingivpersonalivfinance.
Answer:ivSeveralivthingsivcanivbeivaccomplishedivbyivstudyingivpersonalivfinance.ivRecognizeivhowivtoivmanageivunex
pectedivandivexpectedivfinancialivevents.ivPayivasivlittleivasivpossibleivinivincomeivtaxes.ivUnderstandivhowivtoiveffectivel
yivcomparisonivshopivforivvehiclesivandivhomes.ivProtectivwhativweivown.ivInvestivwisely.ivAccumulateivandivprotectivtheiv
wealthivthativweivmayivchooseivtoivspendivduringivourivnon-workingivyearsiv(e.g.,ivretirement)ivorivdonate.
4. Whativareivtheivbuildingivblocksivtoivachievingivfinancialivsuccess?
Answer:ivTheivbuildingivblocksivforivachievingivfinancialivsuccessivincludeivaivfoundationivofivregularivincomeivthati
vprovidesivtheivmeansivtoivsupportivyour ivlifestyleivandivsaveivfor ivdesiredivgoalsivin ivtheivfuture. ivTheivfoundationivsup
portsivaivbaseivofivvariousivbankingivaccounts,ivinsuranceivprotection,ivandivemployeeivbenefits.ivThenivweivcanivesta
blishivgoals,ivaivrecordkeepingivsystem,ivaivbudget,ivandivanivemergencyivsavingsivfund.ivWeivwillivalsoivmanageivvari
ousivexpensesivsuchivasivhousing,ivtransportation,ivinsurance,ivandivtheivpaymentivofivtaxes.ivWeivwillivalsoivneedivtoivh
andleivcredit,ivsavings,ivandiveducationalivcosts.ivFinally,ivweivinvestivinivvariousivinvestmentivalternativesivsuchivasiv
mutualivfunds,ivstocks,ivandivbonds,ivoftenivforivretirement.ivAsivaivresultivofivallivtheseivbuildingivblocks,ivweivareivmo
reivaptivtoivhaveivaivfinanciallyivsuccessfulivlife.
LO1.2 Understand how the economy affects your personal financial success.
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1. Summarizeivtheivphasesivofivtheivbusinessivcycle.
Answer:ivTheivbusinessivcycleiventailsivaivwavelikeivpatternivofivrisingivandivfallingiveconomicivactivityivasivmeasure
divbyiveconomicivindicatorsivlikeivunemploymentivratesivorivtheivgrossivdomesticivproduct.ivTheivphasesivofivtheivbusin
essivcycleivincludeivexpansioniv(preferredivstage—
productionivisivhigh,ivunemploymentivlow,ivinterestivratesivlowivorivfalling,ivstockivmarketivandivconsumerivdemandiv
high),ivpeak,ivcontraction,ivdownturn,ivtrough,ivandivrecovery.
2. Describeivtwoivstatisticsivthativhelpivpredictivtheivfutureivdirectionivofivtheiveconomy.
Answer:ivForecastingivtheivstateivofivtheiveconomyivinvolvesivpredicting,ivestimating,ivorivcalculatingivwhativwillivh
appenivinivadvance.ivWeivneedivtoivbeivableivtoivforecastivtheivstateivofivtheiveconomy,ivinflation,ivandivinterestivratesivsoi
vthativweivhaveivadvanceivwarningivofivtheivdirectionsivandivstrengthivofivchangesivin iveconomicivtrendsivsinceivtheyivwi
llivaffectivourivpersonalivfinances.ivTwoivstatisticsivweivcouldivwatchivareivtheivconsumerivconfidenceivindexiv(howivc
onsumersivfeelivaboutivtheiveconomyivandivtheirivpersonalivfinances)ivandivtheivindexivofivleadingiveconomicivindicat
orsiv(compositeivindex,ivaveragesivtenivcomponentsivofiveconomicivgrowth).
