, 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: Knowledge (K), Communication (C), Ethics (E), Analytic (A), Technology (T), Diversity
(D), Reflective Thinking (RT), Not Applicable (NA)
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).
© John Wiley & Sons, Inc. or the author, All rights reserved. Instructors who are authorized users of this course are permitted to
download these materials and use them in connection with the course. Except as permitted herein or by law, no part of these
materials should be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical,
photocopying, recording or otherwise.
,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 The response is The response is The response is
answer to the is answered lacking a few lacking significant incomplete and
question thoroughly details details limited
Amounts and
Much of the The response does
information Some of the
response is not represent
Answer is discussed are response is
irrelevant, realistic or relevant
realistic/relevant relevant and irrelevant to the
unrealistic, or understanding of
pertinent to question
overly simplistic topic
the question
Organization/clarity
Well Adequate Limited
of thought Poor organization
organized organization organization
(25% of score)
A clear
conclusion or
recommendati
Appropriate Conclusion or
on is
recommendations recommendation Conclusion or No conclusion or
presented
and conclusions are is mostly clear recommendation recommendation is
that is
reached and appropriate is incomplete provided
appropriate
(25% of score) given the content
given the
content
discussed
© John Wiley & Sons, Inc. or the author, All rights reserved. Instructors who are authorized users of this course are permitted to
download these materials and use them in connection with the course. Except as permitted herein or by law, no part of these
materials should be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical,
photocopying, recording or otherwise.
,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. the combination of financial knowledge and skills.
Answer: b; Section: 1.1; LO: 1.1; BT: K; Diff: E; TOT: 2 min; AACSB: K
2. c. I and II only.
Answer: c; Section: 1.1; LO: 1.1; BT: C; Diff: E; TOT: 2 min; AACSB: RT
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 to 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: RT
7. a. Consumer spending.
Answer: a; Section: 1.1; LO: 1.1; BT: K; Diff: E; TOT: 2 min; AACSB: K
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: RT
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: RT
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
© John Wiley & Sons, Inc. or the author, All rights reserved. Instructors who are authorized users of this course are permitted to
download these materials and use them in connection with the course. Except as permitted herein or by law, no part of these
materials should be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical,
photocopying, recording or otherwise.
, 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: E; 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. Answers will vary based on student experiences. The sample grading rubric found in the
solutions manual can be adapted to grade this assignment.
Section: 1.1; LO: 1.1; BT: Ap; Diff: M; TOT: 20 min; AACSB: RT
Explore
1. 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. 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. 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: C
4. Answer: The F.I.R.E. movement may appeal to individuals studying personal finance. The
notion of saving money early if life in order to exit the job market to pursue life dreams,
community service, and work-life balance is something that appeals to Millennials and
others who find working to be restrictive. There are no correct or incorrect answers to this
question. After researching the movement, students may realize that the reality of filling 30
to 50 years of daily experience outside of the job market may not be match the dream,
especially if the retirement budget is very tight. 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: C
© John Wiley & Sons, Inc. or the author, All rights reserved. Instructors who are authorized users of this course are permitted to
download these materials and use them in connection with the course. Except as permitted herein or by law, no part of these
materials should be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical,
photocopying, recording or otherwise.
,Expanded Learning Activity
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: E; Diff: H; TOT: 120 min; AACSB: C
1.1 Practice Questions
(The Practice Questions do not appear in the printed textbook. Autogradable version is available
in your Wiley course, with algorithmically changing values when applicable.)
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: RT
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. 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: RT
4. Someone who reports that they 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.
© John Wiley & Sons, Inc. or the author, All rights reserved. Instructors who are authorized users of this course are permitted to
download these materials and use them in connection with the course. Except as permitted herein or by law, no part of these
materials should be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical,
photocopying, recording or otherwise.
, 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: RT
5. All of the following are pathways to wealth, except
a. saving money on a regular basis.
b. keeping good financial records.
c. spending less than income earned.
d. maximizing insurance expenditures.
Answer: d; Section: 1.1; LO: 1.1; BT: C; Diff: E; TOT: 2 min; AACSB: RT
© John Wiley & Sons, Inc. or the author, All rights reserved. Instructors who are authorized users of this course are permitted to
download these materials and use them in connection with the course. Except as permitted herein or by law, no part of these
materials should be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical,
photocopying, recording or otherwise.
,1.2 Explain how your human and social capital relate to your
financial well-being.
1.2 Multiple-Choice Questions
1. b. human capital.
Answer: b; Section: 1.2; LO: 1.2; BT: K; Diff: E; TOT: 2 min; AACSB: K
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: RT
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: RT
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.
© John Wiley & Sons, Inc. or the author, All rights reserved. Instructors who are authorized users of this course are permitted to
download these materials and use them in connection with the course. Except as permitted herein or by law, no part of these
materials should be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical,
photocopying, recording or otherwise.
, 8. a. A formal network
Answer: a; Section: 1.2; LO: 1.2; BT: C; Diff: E; TOT: 2 min; AACSB: K
9. b. Option 2.
Answer: b; Section: 1.2; LO: 1.2; BT: Ap; Diff: M; 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.
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 cos t 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
© John Wiley & Sons, Inc. or the author, All rights reserved. Instructors who are authorized users of this course are permitted to
download these materials and use them in connection with the course. Except as permitted herein or by law, no part of these
materials should be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical,
photocopying, recording or otherwise.
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: Knowledge (K), Communication (C), Ethics (E), Analytic (A), Technology (T), Diversity
(D), Reflective Thinking (RT), Not Applicable (NA)
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).
© John Wiley & Sons, Inc. or the author, All rights reserved. Instructors who are authorized users of this course are permitted to
download these materials and use them in connection with the course. Except as permitted herein or by law, no part of these
materials should be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical,
photocopying, recording or otherwise.
,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 The response is The response is The response is
answer to the is answered lacking a few lacking significant incomplete and
question thoroughly details details limited
Amounts and
Much of the The response does
information Some of the
response is not represent
Answer is discussed are response is
irrelevant, realistic or relevant
realistic/relevant relevant and irrelevant to the
unrealistic, or understanding of
pertinent to question
overly simplistic topic
the question
Organization/clarity
Well Adequate Limited
of thought Poor organization
organized organization organization
(25% of score)
A clear
conclusion or
recommendati
Appropriate Conclusion or
on is
recommendations recommendation Conclusion or No conclusion or
presented
and conclusions are is mostly clear recommendation recommendation is
that is
reached and appropriate is incomplete provided
appropriate
(25% of score) given the content
given the
content
discussed
© John Wiley & Sons, Inc. or the author, All rights reserved. Instructors who are authorized users of this course are permitted to
download these materials and use them in connection with the course. Except as permitted herein or by law, no part of these
materials should be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical,
photocopying, recording or otherwise.
,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. the combination of financial knowledge and skills.
Answer: b; Section: 1.1; LO: 1.1; BT: K; Diff: E; TOT: 2 min; AACSB: K
2. c. I and II only.
Answer: c; Section: 1.1; LO: 1.1; BT: C; Diff: E; TOT: 2 min; AACSB: RT
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 to 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: RT
7. a. Consumer spending.
Answer: a; Section: 1.1; LO: 1.1; BT: K; Diff: E; TOT: 2 min; AACSB: K
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: RT
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: RT
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
© John Wiley & Sons, Inc. or the author, All rights reserved. Instructors who are authorized users of this course are permitted to
download these materials and use them in connection with the course. Except as permitted herein or by law, no part of these
materials should be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical,
photocopying, recording or otherwise.
, 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: E; 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. Answers will vary based on student experiences. The sample grading rubric found in the
solutions manual can be adapted to grade this assignment.
Section: 1.1; LO: 1.1; BT: Ap; Diff: M; TOT: 20 min; AACSB: RT
Explore
1. 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. 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. 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: C
4. Answer: The F.I.R.E. movement may appeal to individuals studying personal finance. The
notion of saving money early if life in order to exit the job market to pursue life dreams,
community service, and work-life balance is something that appeals to Millennials and
others who find working to be restrictive. There are no correct or incorrect answers to this
question. After researching the movement, students may realize that the reality of filling 30
to 50 years of daily experience outside of the job market may not be match the dream,
especially if the retirement budget is very tight. 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: C
© John Wiley & Sons, Inc. or the author, All rights reserved. Instructors who are authorized users of this course are permitted to
download these materials and use them in connection with the course. Except as permitted herein or by law, no part of these
materials should be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical,
photocopying, recording or otherwise.
,Expanded Learning Activity
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: E; Diff: H; TOT: 120 min; AACSB: C
1.1 Practice Questions
(The Practice Questions do not appear in the printed textbook. Autogradable version is available
in your Wiley course, with algorithmically changing values when applicable.)
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: RT
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. 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: RT
4. Someone who reports that they 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.
© John Wiley & Sons, Inc. or the author, All rights reserved. Instructors who are authorized users of this course are permitted to
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, 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: RT
5. All of the following are pathways to wealth, except
a. saving money on a regular basis.
b. keeping good financial records.
c. spending less than income earned.
d. maximizing insurance expenditures.
Answer: d; Section: 1.1; LO: 1.1; BT: C; Diff: E; TOT: 2 min; AACSB: RT
© John Wiley & Sons, Inc. or the author, All rights reserved. Instructors who are authorized users of this course are permitted to
download these materials and use them in connection with the course. Except as permitted herein or by law, no part of these
materials should be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical,
photocopying, recording or otherwise.
,1.2 Explain how your human and social capital relate to your
financial well-being.
1.2 Multiple-Choice Questions
1. b. human capital.
Answer: b; Section: 1.2; LO: 1.2; BT: K; Diff: E; TOT: 2 min; AACSB: K
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: RT
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: RT
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.
© John Wiley & Sons, Inc. or the author, All rights reserved. Instructors who are authorized users of this course are permitted to
download these materials and use them in connection with the course. Except as permitted herein or by law, no part of these
materials should be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical,
photocopying, recording or otherwise.
, 8. a. A formal network
Answer: a; Section: 1.2; LO: 1.2; BT: C; Diff: E; TOT: 2 min; AACSB: K
9. b. Option 2.
Answer: b; Section: 1.2; LO: 1.2; BT: Ap; Diff: M; 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.
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 cos t 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
© John Wiley & Sons, Inc. or the author, All rights reserved. Instructors who are authorized users of this course are permitted to
download these materials and use them in connection with the course. Except as permitted herein or by law, no part of these
materials should be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical,
photocopying, recording or otherwise.
