SOLUTION MANUAL
Personal Finance, 14th Edition
By E. Thomas Garman, Chapter 1 - 17
,TABLE OF CONTENTS i i i
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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SolutionandAnswerGuide i i i
GARMAN/FOX, PERSONAL FINANCE 14E, CHAPTER 1: THINKING LIKE A FINANCIAL PLANNER
I I I I I I I I I I
TABLE OF CONTENTS I I
AnswersitoiChapteriConceptiChecks ............................................................................................. 2
WhatiDoiYouiRecommendiNow? ................................................................................................... 4
Let’siTalkiAboutiIt........................................................................................................................................................... 5
DoitheiMath .................................................................................................................................... 6
FinancialiPlanningiCases ................................................................................................................ 8
ExtendediLearning ....................................................................................................................... 10
, ANSWERS TO CHAPTER CONCEPT CHECKS
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LO1.1iRecognizeitheikeysitoiachievingifinancialisuccess.
1. Explainitheifiveistepsiinitheifinancialiplanningiprocess.
Answer:iThereiareifiveifundamentalistepsitoitheipersonalifinancialiplanningiprocess:i(1)ievaluateiyouri
financialihealthitoiyourieducationiandicareerichoice;i(2)idefineiyourifinancialigoals;i(3)idevelopiaiplanio
fiactionitoiachieveiyourigoals;i(4)iimplementispendingiandisavingiplansitoimonitoriandicontroliprogre
ssitowardiyourigoals;iandi(5)ireviewiyourifinancialiprogressiandimakeichangesiasiappropriate.
2. Distinguishiamongifinancialisuccess,ifinancialisecurity,iandifinancialihappiness.
Answer:iFinancialisuccessiisitheiachievementiofifinancialiaspirationsithatiareidesired,iplanned,ioriatt
empted.iSuccessiisidefinedibyitheiindividualiorifamilyithatiseeksiit.iFinancialisuccessimayibeidefinediasi
beingiableitoiliveiaccordingitoione’sistandardiofiliving.iFinancialisecurityiisithaticomfortableifeelingit
hatiyourifinancialiresourcesiwillibeiadequateitoifulfillianyineedsiyouihaveiasiwelliasiyouriwants.iFinanci
alihappinessiisitheiexperienceiyouihaveiwheniyouiareisatisfiediwithimoneyimatters.iPeopleiwhoiareih
appyiaboutitheirifinancesiwilliseeiaispilloveriintoipositiveifeelingsiaboutilifeiinigeneral.
3. Summarizeiwhatiyouiwilliaccomplishistudyingipersonalifinance.
Answer:iSeveralithingsicanibeiaccomplishedibyistudyingipersonalifinance.iRecognizeihowitoimanageiu
nexpectediandiexpectedifinancialievents.iPayiasilittleiasipossibleiiniincomeitaxes.iUnderstandihowitoieffe
ctivelyicomparisonishopiforivehiclesiandihomes.iProtectiwhatiweiown.iInvestiwisely.iAccumulateiandiprot
ectitheiwealthithatiweimayichooseitoispendiduringiourinon-workingiyearsi(e.g.,iretirement)ioridonate.
4. Whatiareitheibuildingiblocksitoiachievingifinancialisuccess?
Answer:iTheibuildingiblocksiforiachievingifinancialisuccessiincludeiaifoundationiofiregulariincomeith
atiprovidesitheimeansitoisupportiyourilifestyleiandisaveiforidesiredigoalsiinitheifuture.iTheifoundationi
supportsiaibaseiofivariousibankingiaccounts,iinsuranceiprotection,iandiemployeeibenefits.iTheniweic
aniestablishigoals,iairecordkeepingisystem,iaibudget,iandianiemergencyisavingsifund.iWeiwillialsoima
nageivariousiexpensesisuchiasihousing,itransportation,iinsurance,ianditheipaymentiofitaxes.iWeiwillial
soineeditoihandleicredit,isavings,iandieducationalicosts.iFinally,iweiinvestiinivariousiinvestmentialtern
ativesisuchiasimutualifunds,istocks,iandibonds,iofteniforiretirement.iAsiairesultiofiallitheseibuildingiblo
cks,iweiareimoreiaptitoihaveiaifinanciallyisuccessfulilife.
LO1.2iUnderstandihowitheieconomyiaffectsiyouripersonalifinancialisuccess.
1. Summarizeitheiphasesiofitheibusinessicycle.
Answer:iTheibusinessicycleientailsiaiwavelikeipatterniofirisingiandifallingieconomiciactivityiasimeasur
edibyieconomiciindicatorsilikeiunemploymentiratesioritheigrossidomesticiproduct.iTheiphasesiofitheib
usinessicycleiincludeiexpansioni(preferredistage—
productioniisihigh,iunemploymentilow,iinterestiratesilowiorifalling,istockimarketiandiconsumeridema
ndihigh),ipeak,icontraction,idownturn,itrough,iandirecovery.
