, Solution manual for Introduction to Personal
Finance Beginning Your Financial Journey, 2nd
Edition John E. Grable
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, Chapter 1—Solutions Manual
Beginning Your Financial Journey: The Interior Finance Point of View
Introduction to Personal Finance: Beginning Your Financial Journey
By John Grable and Lance Palmer
Learning Objectives
1.1 Describe how your financial knowledge, experience, risk tolerance, and feelings of control
influence the way you view the financial world.
1.2 Explain how your human and social capital relate to your financial well-being.
1.3 Discuss how financial risk tolerance relates to financial goal achievement.
1.4 Use your unique time perspective to create SMART financial goals.
1.5 Describe strategies to overcome mental biases and improve financial decision making and
well-being.
Key to metadata for questions:
LO: Learning objective number
BT: Bloom’s taxonomy [Knowledge (K), Comprehension (C), Application (Ap), Analysis (An),
Synthesis (S), Evaluation (E)]
Diff: Difficulty level [Easy (E), Medium (M), Hard (H)]
TOT: Expected time for student to complete
AACSB: Communication (C), Ethics (E), Analytic (A), Technology (T), Diversity (D),
Reflective Thinking (RT), Not Applicable (n/a)
Sample rubric for writing questions:
Note: It is generally recommended that the rubric be shared with students, so it should be
sufficiently general to not give away answers.
Notes for instructor:
Each writing question will have criteria which are specific to the question. The instructor may
want to add or delete grading criteria (rows) depending on the topic and assignment. How each
grading criterion will be assessed and the associated points for each level of performance are
found in columns 2–5.
In the sample rubric, a total of 16 points are possible for this assignment. Each grading criterion
(row) is worth up to 4 points (column 2).
,Rubric: (It is suggested that the rubric be shared with the students.)
Full points 75% of points 50% of points 25% of points
Criteria
(4 out of 4) (3 out of 4) (2 out of 4) (1 out of 4)
Thoroughness of
The question is The response is The response is The response is
answer to the
answered lacking a few lacking incomplete and
question
thoroughly details significant details limited
Amounts and The response
Much of the
information Some of the does not
Answer is response is
discussed are response is represent realistic
realistic/relevant irrelevant,
relevant and irrelevant to the or relevant
unrealistic, or
pertinent to the question understanding of
overly simplistic
question topic
Organization/clarity
Adequate Limited
of thought Well organized Poor organization
organization organization
(25% of score)
A clear
Appropriate conclusion or Conclusion or
recommendations recommendation recommendation Conclusion or No conclusion or
and conclusions are is presented that is is mostly clear recommendation recommendation
reached appropriate given and appropriate is incomplete is provided
(25% of score) the content given the content
discussed
Please refer to the sample writing assignment rubric in the solutions manual.
1.1 Describe how your financial knowledge, experience, risk tolerance, and feelings of
control influence the way you view the financial world.
1.1 Multiple-Choice Questions
1. b. how well you understand personal finance information.
Answer: b; Section: 1.1; LO: 1.1; BT: K; Diff: E; TOT: 2 min; AACSB: n/a
2. c. I and II only.
Answer: c; Section: 1.1; LO: 1.1; BT: C; Diff: E; TOT: 2 min; AACSB: n/a
.
, 3. d. your financial knowledge, financial risk-taking, and feelings of control over your situation.
Answer: d; Section: 1.1; LO: 1.1; BT: K; Diff: E; TOT: 2 min; AACSB: RT
4. c. believe strongly in luck and fate
Answer: c; Section: 1.1; LO: 1.1; BT: C; Diff: E; TOT: 2 min; AACSB: RT
5. a. more knowledgeable about the financial marketplace over time and increase his personal wealth.
Answer: a; Section: 1.1; LO: 1.1; BT: C; Diff: E; TOT: 2 min; AACSB: RT
6. c. Having and raising a child.
Answer: c; Section: 1.1; LO: 1.1; BT: C; Diff: E; TOT: 2 min; AACSB: n/a
7. a. Consumer spending.
Answer: a; Section: 1.1; LO: 1.1; BT: K; Diff: E; TOT: 2 min; AACSB: n/a
8. b. GDP would fall because consumers would spend less on goods and services.
Answer: b; Section: 1.1; LO: 1.1; BT: C; Diff: E; TOT: 2 min; AACSB: RT
9. a. A willingness to save money on a regular basis.
Answer: a; Section: 1.1; LO: 1.1; BT: C; Diff: E; TOT: 2 min; AACSB: n/a
10. c. Michelle, who gives regularly to charity, reads about investing and is self-confident.
Answer: c; Section: 1.1; LO: 1.1; BT: C; Diff: E; TOT: 2 min; AACSB: n/a
1.1 Adventures in Personal Finance
Short Answer
1. Answer: High-quality responses should include a discussion of how the wealth was
accumulated, work effort, and locus of control (chance versus work), and also include
a discussion of the student’s perception of his or her locus of control. Please refer to
the sample writing assignment rubric in the solutions manual.
Section: 1.1; LO: 1.1; BT: C; Diff: M; TOT: 15 min; AACSB: RT, E
2. Answer: Risk tolerance describes your willingness to engage in financial activities
that have uncertain outcomes. Individuals with low risk tolerance may be fearful of
the financial markets and financial activities and avoid them. As your financial
literacy increases and risk perceptions are properly understood, your willingness to
engage in risks may increase.
Section: 1.1; LO: 1.1; BT: Ap; Diff: M; TOT: 5 min; AACSB: RT, A
, 3. Answer: High-quality responses should include a discussion of how savings behavior
may differ between generations. Please refer to the sample writing assignment rubric
in the solutions manual.
Section: 1.1; LO: 1.1; BT: Ap or An; Diff: M; TOT: 20 min; AACSB: RT, D
4. List 10 life events and occurrences, and identify whether they require any short-term
or long-term financial resources.
Section: 1.1; LO: 1.1; BT: Ap; Diff: M; TOT: 20 min; AACSB: n/a
Explore
1. Visit the U.S. Census Bureau website and locate the Real Gross Domestic Product,
Chained (2005) Dollars—Annual Percent Change: 1990 to 2010 table. The table provides
data showing the percent change in GDP from one year to the next. Look specifically for
the years 2006, 2007, 2008, and 2009 (these years represent what has since been termed
the Great Recession). What happened to national GDP during those years? What might
explain the data?
Answer: GDP decreased during this time period. A recession is a decrease in GDP.
Section: 1.1; LO: 1.1; BT: An; Diff: E; TOT: 10 min; AACSB: A
2. Conduct an Internet search using the phrase “financial literacy.” What type of programs,
study materials, and quizzes are available for free? Share your best findings with others
in class.
Answer: High-quality responses should include a discussion of material that the student
found as well as the student’s assessment of that material. Please refer to the sample
writing assignment rubric in the solutions manual.
Section: 1.1; LO: 1.1; BT: C; Diff: E; TOT: 20 min; AACSB: T
3. The National Football League (NFL) and Visa, Inc. have teamed up to promote
financial literacy. You can play a realistic football game online either against the
computer or a friend. Visit the game’s website by searching the Internet for “practical
money skills training camp.” Next, play a short 5- or 10-minute game. To progress
downfield and score points you must answer financial literacy questions. At the end of
the game assess how well you did, both in points and questions answered correctly. Do
you think this type of game would help others learn about financial issues? Why or why
not?
Answer: High-quality responses should include a discussion of how well the student
performed in the game and the student’s assessment whether this type of learning
platform is helpful for others. Students should justify their responses. Please refer to the
sample writing assignment rubric in the solutions manual.
, Section: 1.1; LO: 1.1; BT: An; Diff: M; TOT: 20 min; AACSB: n/a
1.1 Expanded Learning Activity
Visit Google Scholar and enter “financial literacy” as a keyword search. Choose a paper that
matches the search. Read the paper and write a short (300- to 500-word) reaction to the
paper. Note that these are research papers, which means that most have references to
statistics and other quantitative analyses. When writing your reaction, focus on the key
results related to financial literacy rather than the methods used by the paper’s authors.
Answer: High-quality responses should discuss the results of the research and how those
results relate to financial planning. Please refer to the sample writing assignment rubric in the
solutions manual.
Section: 1.1; LO: 1.1; BT: Ap; Diff: H; TOT: 120 min; AACSB: C
1.1 Practice Questions
1. Which of the following elements influence your view of the financial world?
I. Your risk tolerance.
II. How much you believe you control your financial future.
III. Knowledge about personal finance topics.
a. II only.
b. II and III only.
c. I and II only.
d. I, II, and III.
Answer: d; Section: 1.1; LO: 1.1; BT: C; Diff: E; TOT: 2 min; AACSB: RT
2. Someone who feels that investing is too difficult to understand likely
a. has a lower level of financial literacy.
b. is positioned to maximize lifetime wealth accumulation goals.
c. has a high tolerance for financial risk.
d. feels in control of his or her financial situation.
Answer: a; Section: 1.1; LO: 1.1; BT: C; Diff: E; TOT: 2 min; AACSB: n/a
3. Why might some people who are nearing retirement feel less confident about their financial future?
a. They have too much debt.
b. They have not saved enough over their lifetime.
c. They live too frugally and cannot enjoy the joys of retirement.
d. Both they have too much debt and they have not saved enough over their lifetime.
Answer: d; Section: 1.1; LO: 1.1; BT: C; Diff: E; TOT: 2 min; AACSB: n/a
4. Someone who reports strongly agree with (a) the thought of taking a risk is exciting to me, (b) in
terms of investing, high returns are more important than safety, and (c) making money in stocks and
bonds is based on knowledge is most likely
a. willing to take more financial risk.
b. willing to take no financial risk.
c. believing in luck and fate.
, d. feeling that he or she cannot control his or her financial future.
Answer: a; Section: 1.1; LO: 1.1; BT: C; Diff: M; TOT: 2 min; AACSB: n/a
5. All of the following are pathways to wealth, except
a. saving money on a regular basis.
b. keeping good records.
c. spending less than income earned.
d. minimizing insurance expenditures.
Answer: d; Section: 1.1; LO: 1.1; BT: C; Diff: E; TOT: 2 min; AACSB: n/a
1.2 Explain how your human and social capital relate to your financial well-being.
1.2 Multiple-Choice Questions
1.
1. b. human capital.
Answer: b; Section: 1.2; LO: 1.2; BT: K; Diff: E; TOT: 2 min; AACSB: n/a
2. b. Michelle.
Answer: b; Section: 1.2; LO: 1.2; BT: Ap; Diff: M; TOT: 2 min; AACSB: RT
Solution: Human capital is your ability and willingness to work, learn, earn, and make wise decisions
about how to save and invest money. Earnings are often closely associated with your level of formal
education (see Illustration 1.2.1). Holding an advanced degree is often a pathway to higher income
and human capital. Those with an advanced academic degree tend to do better when the economy
turns downward. Michelle does not have an advanced degree.
3. a. Healthy people spend more money on food and exercise, which reduces their lifetime
wealth accumulation.
Answer: a; Section: 1.2; LO: 1.2; BT: C; Diff: E; TOT: 2 min; AACSB: n/a
4. c. Tammy.
,Answer: c; Section: 1.2; LO: 1.2; BT: Ap; Diff: M; TOT: 2 min; AACSB: RT
Solution: In addition to education, your health affects human capital in both the short run and the long
run. Generally, healthy people work more hours and for a longer period of years over their life span
compared to those with health problems. Thus, healthy people tend to earn more money on an annual
basis, as well as over their lifetimes. Poor health may result in a lower standard of living across the
life span. Actively managing your health by eating a healthy diet, avoiding substance abuse, and
preventing and minimizing accidents (by wearing your seat belt and never texting while driving) all
add up to a healthy lifestyle that will extend your life and increase your human capital. Lance is a
smoker, and Rob regularly texts while driving.
5. a. Relocate to a place where his welding skills will be valued in the marketplace.
Answer: a; Section: 1.2; LO: 1.2; BT: C; Diff: E; TOT: 2 min; AACSB: RT
6. a. Converting human capital to financial wealth depends on wise planning and
management.
Answer: a; Section: 1.2; LO: 1.2; BT: C; Diff: E; TOT: 2 min; AACSB: n/a
7. b. Jorge.
Answer: b; Section: 1.2; LO: 1.2; BT: Ap; Diff: M; TOT: 2 min; AACSB: RT
Solution: Unlike human capital, social capital is not found in individuals themselves but rather in the
space between individuals or the network of connections among people. Your social capital is shaped
by informal and formal networks, like Jorge’s fraternity.
8. a. A formal network
Answer: a; Section: 1.2; LO: 1.2; BT: C; Diff: E; TOT: 2 min; AACSB: n/a
9. b. Option 2.
Answer: b; Section: 1.2; LO: 1.2; BT: Ap; Diff: E; TOT: 2 min; AACSB: A
Solution: Option 2 has a $40,000/year payback, where Option 1 only has a $35,000/year payback.
The higher payback amount will achieve a quicker breakeven.
WileyPlus Version – #9 Multiple-Choice.
Answer: Reconsider her decision (chosen area of study or school) because the cost is high compared
to her potential earnings.
Solution: Your earnings are an indicator of the value of your human capital in the labor market. While
earnings are often closely associated with your level of formal education, the supply and demand for a
particular skill or knowledge will ultimately determine the relative value. For example, a physician is
clearly more valuable than an anthropologist and is reflected in typical earnings.
10. d. only go back to school if the time and effort will result in an increase in personal
satisfaction and fulfillment.
Answer: d; Section: 1.2; LO: 1.2; BT: Ap; Diff: M; TOT: 2 min; AACSB: RT
Solution: Regardless of the type of school or educational program you are interested in pursuing, you
would be wise to compare the cost of the program to the additional annual income you’ll earn once
you have completed it. You can use the following formula to estimate how long it will take you to
earn back your investment. This is called the investment payback period. The longer the payback
period, the more you should question the economic value of your investment.
Total costs
Payback period =
Increase in annual income
$75,000 cost of degree + $50,000 lost annual wages
Payback period = = 25 years
$55,000 new earnings − $50,000 past earnings
, It turns out that it is going to take Ruby about 25 years to break even on her investment, which is 8
years past her expected retirement at 67 years of age. The payback period is helpful in making
education decisions, but it shouldn’t be the only factor considered. For example, the investment
payback period calculation doesn’t account for the value of Ruby’s human and social capital that
she’ll obtain by finishing school. There’s also the personal feeling of satisfaction that is hard to value.
1.2 Adventures in Personal Finance
Short Answer
1. Answer: High-quality responses should address the specific questions. Please refer to the
sample writing assignment rubric in the solutions manual.
Section: 1.2; LO: 1.2; BT: Ap; Diff: M; TOT: 15 min; AACSB: RT
2. Answer: High-quality responses should include a discussion of protection measures such as
seat belts, exercise/good health practices, safe driving, and stress management. Responses
may also include health insurance, life insurance, disability insurance, and other forms of
insurance on the individual (NOT property insurance). Please refer to the sample writing
assignment rubric in the solutions manual.
Section: 1.2; LO: 1.2; BT: Ap; Diff: M; TOT: 20 min; AACSB: RT
3. Answer: High-quality responses should include a discussion of whom these relationships
are with and how those relationships can be strengthened. Please refer to the sample writing
assignment rubric in the solutions manual.
Section: 1.2; LO: 1.2; BT: An; Diff: M; TOT: 30 min; AACSB: RT, C
4. Answer: e—1; b—2; h—3; a—4; g—5; j—6; f—7; i—8; d—9; c—10.
Solution: (1) physician, (2) dentist, (3) lawyer, (4) personal financial advisor, (5)
construction manager, (6) electrical engineer, (7) police officer, (8) kindergarten teacher,
(9) social worker, (10) massage therapist.
Section: 1.2; LO: 1.2; BT: Ap; Diff: M; TOT: 5 min; AACSB: RT
Explore
1. Take an inventory of your assets—the things you own. What approximately are they worth?
Now calculate the value of your human capital? A rough estimate of your human capital is
your annual pay (or expected annual pay after you graduate) divided by .06. How does this
number compare to the value of your other assets? Summarize your calculations and write
one to two paragraphs on what you found.
Answer: High-quality responses should include a discussion of the student’s estimated human
capital and how it compares with his or her other assets. Please refer to the sample writing
assignment rubric in the solutions manual.
Finance Beginning Your Financial Journey, 2nd
Edition John E. Grable
Hello all ,
We have all what you need with best price
Our email :
Our website :
testbanks-store.com
, Chapter 1—Solutions Manual
Beginning Your Financial Journey: The Interior Finance Point of View
Introduction to Personal Finance: Beginning Your Financial Journey
By John Grable and Lance Palmer
Learning Objectives
1.1 Describe how your financial knowledge, experience, risk tolerance, and feelings of control
influence the way you view the financial world.
1.2 Explain how your human and social capital relate to your financial well-being.
1.3 Discuss how financial risk tolerance relates to financial goal achievement.
1.4 Use your unique time perspective to create SMART financial goals.
1.5 Describe strategies to overcome mental biases and improve financial decision making and
well-being.
Key to metadata for questions:
LO: Learning objective number
BT: Bloom’s taxonomy [Knowledge (K), Comprehension (C), Application (Ap), Analysis (An),
Synthesis (S), Evaluation (E)]
Diff: Difficulty level [Easy (E), Medium (M), Hard (H)]
TOT: Expected time for student to complete
AACSB: Communication (C), Ethics (E), Analytic (A), Technology (T), Diversity (D),
Reflective Thinking (RT), Not Applicable (n/a)
Sample rubric for writing questions:
Note: It is generally recommended that the rubric be shared with students, so it should be
sufficiently general to not give away answers.
Notes for instructor:
Each writing question will have criteria which are specific to the question. The instructor may
want to add or delete grading criteria (rows) depending on the topic and assignment. How each
grading criterion will be assessed and the associated points for each level of performance are
found in columns 2–5.
In the sample rubric, a total of 16 points are possible for this assignment. Each grading criterion
(row) is worth up to 4 points (column 2).
,Rubric: (It is suggested that the rubric be shared with the students.)
Full points 75% of points 50% of points 25% of points
Criteria
(4 out of 4) (3 out of 4) (2 out of 4) (1 out of 4)
Thoroughness of
The question is The response is The response is The response is
answer to the
answered lacking a few lacking incomplete and
question
thoroughly details significant details limited
Amounts and The response
Much of the
information Some of the does not
Answer is response is
discussed are response is represent realistic
realistic/relevant irrelevant,
relevant and irrelevant to the or relevant
unrealistic, or
pertinent to the question understanding of
overly simplistic
question topic
Organization/clarity
Adequate Limited
of thought Well organized Poor organization
organization organization
(25% of score)
A clear
Appropriate conclusion or Conclusion or
recommendations recommendation recommendation Conclusion or No conclusion or
and conclusions are is presented that is is mostly clear recommendation recommendation
reached appropriate given and appropriate is incomplete is provided
(25% of score) the content given the content
discussed
Please refer to the sample writing assignment rubric in the solutions manual.
1.1 Describe how your financial knowledge, experience, risk tolerance, and feelings of
control influence the way you view the financial world.
1.1 Multiple-Choice Questions
1. b. how well you understand personal finance information.
Answer: b; Section: 1.1; LO: 1.1; BT: K; Diff: E; TOT: 2 min; AACSB: n/a
2. c. I and II only.
Answer: c; Section: 1.1; LO: 1.1; BT: C; Diff: E; TOT: 2 min; AACSB: n/a
.
, 3. d. your financial knowledge, financial risk-taking, and feelings of control over your situation.
Answer: d; Section: 1.1; LO: 1.1; BT: K; Diff: E; TOT: 2 min; AACSB: RT
4. c. believe strongly in luck and fate
Answer: c; Section: 1.1; LO: 1.1; BT: C; Diff: E; TOT: 2 min; AACSB: RT
5. a. more knowledgeable about the financial marketplace over time and increase his personal wealth.
Answer: a; Section: 1.1; LO: 1.1; BT: C; Diff: E; TOT: 2 min; AACSB: RT
6. c. Having and raising a child.
Answer: c; Section: 1.1; LO: 1.1; BT: C; Diff: E; TOT: 2 min; AACSB: n/a
7. a. Consumer spending.
Answer: a; Section: 1.1; LO: 1.1; BT: K; Diff: E; TOT: 2 min; AACSB: n/a
8. b. GDP would fall because consumers would spend less on goods and services.
Answer: b; Section: 1.1; LO: 1.1; BT: C; Diff: E; TOT: 2 min; AACSB: RT
9. a. A willingness to save money on a regular basis.
Answer: a; Section: 1.1; LO: 1.1; BT: C; Diff: E; TOT: 2 min; AACSB: n/a
10. c. Michelle, who gives regularly to charity, reads about investing and is self-confident.
Answer: c; Section: 1.1; LO: 1.1; BT: C; Diff: E; TOT: 2 min; AACSB: n/a
1.1 Adventures in Personal Finance
Short Answer
1. Answer: High-quality responses should include a discussion of how the wealth was
accumulated, work effort, and locus of control (chance versus work), and also include
a discussion of the student’s perception of his or her locus of control. Please refer to
the sample writing assignment rubric in the solutions manual.
Section: 1.1; LO: 1.1; BT: C; Diff: M; TOT: 15 min; AACSB: RT, E
2. Answer: Risk tolerance describes your willingness to engage in financial activities
that have uncertain outcomes. Individuals with low risk tolerance may be fearful of
the financial markets and financial activities and avoid them. As your financial
literacy increases and risk perceptions are properly understood, your willingness to
engage in risks may increase.
Section: 1.1; LO: 1.1; BT: Ap; Diff: M; TOT: 5 min; AACSB: RT, A
, 3. Answer: High-quality responses should include a discussion of how savings behavior
may differ between generations. Please refer to the sample writing assignment rubric
in the solutions manual.
Section: 1.1; LO: 1.1; BT: Ap or An; Diff: M; TOT: 20 min; AACSB: RT, D
4. List 10 life events and occurrences, and identify whether they require any short-term
or long-term financial resources.
Section: 1.1; LO: 1.1; BT: Ap; Diff: M; TOT: 20 min; AACSB: n/a
Explore
1. Visit the U.S. Census Bureau website and locate the Real Gross Domestic Product,
Chained (2005) Dollars—Annual Percent Change: 1990 to 2010 table. The table provides
data showing the percent change in GDP from one year to the next. Look specifically for
the years 2006, 2007, 2008, and 2009 (these years represent what has since been termed
the Great Recession). What happened to national GDP during those years? What might
explain the data?
Answer: GDP decreased during this time period. A recession is a decrease in GDP.
Section: 1.1; LO: 1.1; BT: An; Diff: E; TOT: 10 min; AACSB: A
2. Conduct an Internet search using the phrase “financial literacy.” What type of programs,
study materials, and quizzes are available for free? Share your best findings with others
in class.
Answer: High-quality responses should include a discussion of material that the student
found as well as the student’s assessment of that material. Please refer to the sample
writing assignment rubric in the solutions manual.
Section: 1.1; LO: 1.1; BT: C; Diff: E; TOT: 20 min; AACSB: T
3. The National Football League (NFL) and Visa, Inc. have teamed up to promote
financial literacy. You can play a realistic football game online either against the
computer or a friend. Visit the game’s website by searching the Internet for “practical
money skills training camp.” Next, play a short 5- or 10-minute game. To progress
downfield and score points you must answer financial literacy questions. At the end of
the game assess how well you did, both in points and questions answered correctly. Do
you think this type of game would help others learn about financial issues? Why or why
not?
Answer: High-quality responses should include a discussion of how well the student
performed in the game and the student’s assessment whether this type of learning
platform is helpful for others. Students should justify their responses. Please refer to the
sample writing assignment rubric in the solutions manual.
, Section: 1.1; LO: 1.1; BT: An; Diff: M; TOT: 20 min; AACSB: n/a
1.1 Expanded Learning Activity
Visit Google Scholar and enter “financial literacy” as a keyword search. Choose a paper that
matches the search. Read the paper and write a short (300- to 500-word) reaction to the
paper. Note that these are research papers, which means that most have references to
statistics and other quantitative analyses. When writing your reaction, focus on the key
results related to financial literacy rather than the methods used by the paper’s authors.
Answer: High-quality responses should discuss the results of the research and how those
results relate to financial planning. Please refer to the sample writing assignment rubric in the
solutions manual.
Section: 1.1; LO: 1.1; BT: Ap; Diff: H; TOT: 120 min; AACSB: C
1.1 Practice Questions
1. Which of the following elements influence your view of the financial world?
I. Your risk tolerance.
II. How much you believe you control your financial future.
III. Knowledge about personal finance topics.
a. II only.
b. II and III only.
c. I and II only.
d. I, II, and III.
Answer: d; Section: 1.1; LO: 1.1; BT: C; Diff: E; TOT: 2 min; AACSB: RT
2. Someone who feels that investing is too difficult to understand likely
a. has a lower level of financial literacy.
b. is positioned to maximize lifetime wealth accumulation goals.
c. has a high tolerance for financial risk.
d. feels in control of his or her financial situation.
Answer: a; Section: 1.1; LO: 1.1; BT: C; Diff: E; TOT: 2 min; AACSB: n/a
3. Why might some people who are nearing retirement feel less confident about their financial future?
a. They have too much debt.
b. They have not saved enough over their lifetime.
c. They live too frugally and cannot enjoy the joys of retirement.
d. Both they have too much debt and they have not saved enough over their lifetime.
Answer: d; Section: 1.1; LO: 1.1; BT: C; Diff: E; TOT: 2 min; AACSB: n/a
4. Someone who reports strongly agree with (a) the thought of taking a risk is exciting to me, (b) in
terms of investing, high returns are more important than safety, and (c) making money in stocks and
bonds is based on knowledge is most likely
a. willing to take more financial risk.
b. willing to take no financial risk.
c. believing in luck and fate.
, d. feeling that he or she cannot control his or her financial future.
Answer: a; Section: 1.1; LO: 1.1; BT: C; Diff: M; TOT: 2 min; AACSB: n/a
5. All of the following are pathways to wealth, except
a. saving money on a regular basis.
b. keeping good records.
c. spending less than income earned.
d. minimizing insurance expenditures.
Answer: d; Section: 1.1; LO: 1.1; BT: C; Diff: E; TOT: 2 min; AACSB: n/a
1.2 Explain how your human and social capital relate to your financial well-being.
1.2 Multiple-Choice Questions
1.
1. b. human capital.
Answer: b; Section: 1.2; LO: 1.2; BT: K; Diff: E; TOT: 2 min; AACSB: n/a
2. b. Michelle.
Answer: b; Section: 1.2; LO: 1.2; BT: Ap; Diff: M; TOT: 2 min; AACSB: RT
Solution: Human capital is your ability and willingness to work, learn, earn, and make wise decisions
about how to save and invest money. Earnings are often closely associated with your level of formal
education (see Illustration 1.2.1). Holding an advanced degree is often a pathway to higher income
and human capital. Those with an advanced academic degree tend to do better when the economy
turns downward. Michelle does not have an advanced degree.
3. a. Healthy people spend more money on food and exercise, which reduces their lifetime
wealth accumulation.
Answer: a; Section: 1.2; LO: 1.2; BT: C; Diff: E; TOT: 2 min; AACSB: n/a
4. c. Tammy.
,Answer: c; Section: 1.2; LO: 1.2; BT: Ap; Diff: M; TOT: 2 min; AACSB: RT
Solution: In addition to education, your health affects human capital in both the short run and the long
run. Generally, healthy people work more hours and for a longer period of years over their life span
compared to those with health problems. Thus, healthy people tend to earn more money on an annual
basis, as well as over their lifetimes. Poor health may result in a lower standard of living across the
life span. Actively managing your health by eating a healthy diet, avoiding substance abuse, and
preventing and minimizing accidents (by wearing your seat belt and never texting while driving) all
add up to a healthy lifestyle that will extend your life and increase your human capital. Lance is a
smoker, and Rob regularly texts while driving.
5. a. Relocate to a place where his welding skills will be valued in the marketplace.
Answer: a; Section: 1.2; LO: 1.2; BT: C; Diff: E; TOT: 2 min; AACSB: RT
6. a. Converting human capital to financial wealth depends on wise planning and
management.
Answer: a; Section: 1.2; LO: 1.2; BT: C; Diff: E; TOT: 2 min; AACSB: n/a
7. b. Jorge.
Answer: b; Section: 1.2; LO: 1.2; BT: Ap; Diff: M; TOT: 2 min; AACSB: RT
Solution: Unlike human capital, social capital is not found in individuals themselves but rather in the
space between individuals or the network of connections among people. Your social capital is shaped
by informal and formal networks, like Jorge’s fraternity.
8. a. A formal network
Answer: a; Section: 1.2; LO: 1.2; BT: C; Diff: E; TOT: 2 min; AACSB: n/a
9. b. Option 2.
Answer: b; Section: 1.2; LO: 1.2; BT: Ap; Diff: E; TOT: 2 min; AACSB: A
Solution: Option 2 has a $40,000/year payback, where Option 1 only has a $35,000/year payback.
The higher payback amount will achieve a quicker breakeven.
WileyPlus Version – #9 Multiple-Choice.
Answer: Reconsider her decision (chosen area of study or school) because the cost is high compared
to her potential earnings.
Solution: Your earnings are an indicator of the value of your human capital in the labor market. While
earnings are often closely associated with your level of formal education, the supply and demand for a
particular skill or knowledge will ultimately determine the relative value. For example, a physician is
clearly more valuable than an anthropologist and is reflected in typical earnings.
10. d. only go back to school if the time and effort will result in an increase in personal
satisfaction and fulfillment.
Answer: d; Section: 1.2; LO: 1.2; BT: Ap; Diff: M; TOT: 2 min; AACSB: RT
Solution: Regardless of the type of school or educational program you are interested in pursuing, you
would be wise to compare the cost of the program to the additional annual income you’ll earn once
you have completed it. You can use the following formula to estimate how long it will take you to
earn back your investment. This is called the investment payback period. The longer the payback
period, the more you should question the economic value of your investment.
Total costs
Payback period =
Increase in annual income
$75,000 cost of degree + $50,000 lost annual wages
Payback period = = 25 years
$55,000 new earnings − $50,000 past earnings
, It turns out that it is going to take Ruby about 25 years to break even on her investment, which is 8
years past her expected retirement at 67 years of age. The payback period is helpful in making
education decisions, but it shouldn’t be the only factor considered. For example, the investment
payback period calculation doesn’t account for the value of Ruby’s human and social capital that
she’ll obtain by finishing school. There’s also the personal feeling of satisfaction that is hard to value.
1.2 Adventures in Personal Finance
Short Answer
1. Answer: High-quality responses should address the specific questions. Please refer to the
sample writing assignment rubric in the solutions manual.
Section: 1.2; LO: 1.2; BT: Ap; Diff: M; TOT: 15 min; AACSB: RT
2. Answer: High-quality responses should include a discussion of protection measures such as
seat belts, exercise/good health practices, safe driving, and stress management. Responses
may also include health insurance, life insurance, disability insurance, and other forms of
insurance on the individual (NOT property insurance). Please refer to the sample writing
assignment rubric in the solutions manual.
Section: 1.2; LO: 1.2; BT: Ap; Diff: M; TOT: 20 min; AACSB: RT
3. Answer: High-quality responses should include a discussion of whom these relationships
are with and how those relationships can be strengthened. Please refer to the sample writing
assignment rubric in the solutions manual.
Section: 1.2; LO: 1.2; BT: An; Diff: M; TOT: 30 min; AACSB: RT, C
4. Answer: e—1; b—2; h—3; a—4; g—5; j—6; f—7; i—8; d—9; c—10.
Solution: (1) physician, (2) dentist, (3) lawyer, (4) personal financial advisor, (5)
construction manager, (6) electrical engineer, (7) police officer, (8) kindergarten teacher,
(9) social worker, (10) massage therapist.
Section: 1.2; LO: 1.2; BT: Ap; Diff: M; TOT: 5 min; AACSB: RT
Explore
1. Take an inventory of your assets—the things you own. What approximately are they worth?
Now calculate the value of your human capital? A rough estimate of your human capital is
your annual pay (or expected annual pay after you graduate) divided by .06. How does this
number compare to the value of your other assets? Summarize your calculations and write
one to two paragraphs on what you found.
Answer: High-quality responses should include a discussion of the student’s estimated human
capital and how it compares with his or her other assets. Please refer to the sample writing
assignment rubric in the solutions manual.
