,Solution manual for Personal Finance, 2nd
Edition by Vickie L. Bajtelsmit
Hello all ,
We have all what you need with best price
Our email :
Our website :
testbanks-store.com
,CHAPTER 1 Instructor Manual and Solutions
The Financial Planning Process
LEARNING OBJECTIVES
LO 1.1 Describe the personal financial planning process, and explain how the elements of a
comprehensive financial plan fit together.
LO 1.2 Describe how individual characteristics and economic factors influence personal financial
planning.
LO 1.3 Create a prioritized list of short-term and long-term personal financial goals.
LO 1.4 Know when and how to find qualified financial planning professionals.
LO 1.5 Consider opportunity costs and marginal effects in making personal finance decisions.
SUGGESTED COURSE PLAN
The first chapter can typically be covered easily in one week out of a typical 15-16 week semester. A
suggested course plan for a class that meets twice per week:
Class Topic and Reading Suggested WileyPLUS Personal Financial WileyPLUS
Period Assignment (by WileyPLUS Resources to Use in Planner Assignment Homework
Learning Pre-Class Class Assignment
Objective) Assignments
1 Ch 1 The Financial Register in Money Attitudes (PFP Interactive:
Planning Process WileyPLUS DP 1.1 Percentage 1.1) Financial Literacy
Read LO1.1 PFP Change Quiz
Process, Reflection Question
LO1.2 Factors 1: Effects of Inflation
Affecting PFP
2 Ch 1 Financial Discussion 1.2: Goal Setting (PFP 1.3 Chapter 1
Decision-making Impact of Interactive: Decision- and PFP 1.4) Homework: R:2-
Strategies Inflation making Style 3,6; P:1-2,11
Read LO1.3 Setting Reflection Question
Goals 2: Decision-making Adaptive Practice
LO1.4 Financial style Ch 1
Professional
LO 1.5 Decision-
making
File-based assignments for each of the Personal Financial Planning Worksheets have been set up in
WileyPLUS so that you can easily assign these.
Copyright © 2020 John Wiley & Sons, Inc. Bajtelsmit, Personal Finance, 2e, Instructors Manual and Solutions
,CHAPTER OUTLINE AND SUMMARY
LO 1.1 Describe the personal financial planning process, and explain how the elements of a
comprehensive financial plan fit together.
WHAT IS PERSONAL FINANCIAL PLANNING?
I. WHY STUDY PERSONAL FINANCIAL PLANNING?
A. What Are the Benefits of Personal Financial Planning?
B. Why Do People Avoid Financial Planning?
C. What Problems Can Be Caused by Poor Financial Planning?
II. THE PERSONAL FINANCIAL PLANNING PROCESS
A. Step 1: Organize Your Financial Information and Set Short-Term and Long-Term Goals
B. Step 2: Analyze Your Current Financial Status
C. Step 3: Identify and Evaluate Alternative Strategies for Achieving Your Goals
D. Step 4: Implement Your Financial Plan
E. Step 5: Monitor Your Progress and Revise Your Plan as Needed
III. ELEMENTS OF A COMPREHENSIVE FINANCIAL PLAN
LO 1.2 Describe how individual characteristics and economic factors influence personal financial
planning.
FACTORS THAT INFLUENCE FINANCIAL PLANNING
I. INDIVIDUAL CHARACTERISTICS AND YOUR FINANCIAL PLAN
A. Life Cycle Factors
B. Demographic Characteristics
C. Values and Attitudes
II. ECONOMIC FACTORS AND YOUR FINANCIAL PLAN
A. Inflation
B. Interest Rates
C. The Economy and the Job Market
D. Political Unrest and Global Issues
LO 1.3 Create a prioritized list of short-term and long-term personal financial goals.
SETTING SHORT-TERM AND LONG-TERM FINANCIAL GOALS
I. WHY GOALS ARE IMPORTANT
II. THE GOAL-SETTING PROCESS
LO 1.4 Know when and how to find qualified financial planning professionals.
,SELECTING QUALIFIED FINANCIAL PLANNING PROFESSIONALS
I. WHEN DO YOU NEED A FINANCIAL PLANNER?
II. FACTORS TO CONSIDER IN CHOOSING A FINANCIAL PLANNER
III. HOW ARE PLANNERS PAID?
LO 1.5 Consider opportunity costs and marginal effects in making personal finance decisions.
MAKING EFFECTIVE DECISIONS
I. MAKE REASONABLE ASSUMPTIONS
II. APPLY MARGINAL REASONING
III. CONSIDER OPPORTUNITY COSTS
IV. USE SENSITIVITY ANALYSIS
V. DECISION-MAKING STYLES
Copyright © 2020 John Wiley & Sons, Inc. Bajtelsmit, Personal Finance, 2e, Instructors Manual and Solutions
, TEACHING SUGGESTIONS
1. Ask students to take the Personal Financial Literacy quiz (Interactive Figure 1.1) before the first
class or during the first week. Although you will not see their scores or count their actual grades on
the quiz, it can be a helpful baseline for students and can also help to preview topics that will be
covered in the course. Have a discussion in class about what components of the course they think
will be most helpful to them. You may want them to retake that same quiz at the end of the course to
compare results.
2. Most personal finance instructors ask students to develop a personal financial plan during the
semester. The first class is an appropriate time to explain this assignment and to direct the students
to the related resources included in WileyPlus Learning Space.
3. Ask students to complete Excel Worksheet 1.1 Money Attitudes Questionnaire and, if possible, to
have family members or roommates complete it as well. Follow-up class discussion can center on
how differences in attitudes can make joint financial decisions more difficult.
4. Many students take a personal finance class because they have a financial problem they would like
to work on, such as overspending or credit card debt. Ask each student to list three short-term
personal finance goals that they would like to achieve in the coming year and three long-term goals
they would like to achieve in the next five years. Break the class into small groups and have them
compare their lists. As a class, compile a list of the most common short-term goals coming out of the
small groups. Discuss which is/are more important and why.
5. Illustrate the impact of inflation by comparing the cost of tuition at your university for the current
year to that in previous years. If you do not have this information, you can use the average tuition
costs available at trends.collegeboard.org. This example is a good way to illustrate the concept of
percentage change and annualized percentage change.
6. Use Interactive Figure 1.4 Socioeconomic Differences in Risk Aversion in class, asking students to
vote by show of hands on each of the questions. Use this to open up a discussion about why people
have different attitudes and risk aversion and how that might affect their personal finances in the
future.
7. Ask students to complete Interactive Figure 1.6 Decision-Making Styles. This could be the
springboard for a discussion related to good and bad personal finance habits and the influence that
personality traits can have on financial outcomes.
, CONCEPT REVIEW QUESTIONS
1. Allen has just graduated from college and is considering the purchase of a new or used car.
Describe how Allen can use the personal financial planning process in making this purchase.
Answer: When making a decision about buying a new or used car, Allen should know his future
financial goals and how he will fund them based on his current financial position. If his car payments
are too high or he is laid off unexpectedly, he will not be able to meet his basic needs nor achieve
his longer-term goals. He needs to make only those financial choices that are consistent with his
financial plan and will not place undue stress or burden on him.
Sec 1.1; LO 1.1; BT: C; Difficulty: E; TOT: 2 min; AACSB: Reflective Thinking
2. For each component of a comprehensive financial plan, identify a decision that must be
made.
Answer: Establish a firm foundation: What financial goals are most appropriate for you given your
personal needs and preferences? Securing basic needs: Should you borrow or pay from savings
for acquiring certain assets, such as a car, television, furniture? Wealth building and protection: How
should you diversify your investments to minimize the risk of losing your entire investment nest egg?
Sec 1.1; LO 1.1; BT: C; Difficulty: E; TOT: 3 min; AACSB:
3. Why is it important to establish a establish a firm foundation and secure your basic needs
before beginning to invest?
Answer: Before you can begin investing, you need to establish the necessary foundations by
learning about the personal financial planning process, evaluating your current financial situation,
and securing your basic needs such as transportations, housing, an emergency fund and insurance.
Once your basic needs are taken care of, you can determine what you have available to apply to
long-term goals.
Sec 1.1; LO 1.1; BT: C; Difficulty: E; TOT: 2 min; AACSB: Reflective Thinking
4. Under what circumstances might the Federal Reserve take action to increase short-term
interest rates?
Answer: The Federal Reserve is likely to raise interest rates if the economy is growing at a fast
pace, employment is at a high level, and there is an increased risk that inflation will increase. The
increased rates will slow business and household spending, which will, in turn, slow economic
growth and price inflation.
Sec 1.2; LO 1.2; BT: C; Difficulty: M; TOT: 2 min; AACSB:
5. What are the steps in the goal-setting process?
Answer:
(1) Make a wish list
(2) Prioritize your list
(3) Break large goals into subgoals
(4) Reevaluate regularly
Sec 1.3; LO 1.3; BT: K; Difficulty: E; TOT: 2 min; AACSB:
6. What factors should you consider in selecting a financial planning professional?
Copyright © 2020 John Wiley & Sons, Inc. Bajtelsmit, Personal Finance, 2e, Instructors Manual and Solutions
, Answer: A financial planner should be selected based on their knowledge, education, professional
certifications, experience, client base, fee structure, reputation, and ethical approach to financial
planning.
Sec 1.4; LO 1.4; BT: C; Difficulty: M; TOT: 2 min; AACSB:
7. What are the advantages of using a fee-only planner compared with a commission-based
planner?
Answer: A fee-only planner is more likely to make recommendations that are in the best interest of
their clients and not based on the commission they would receive from the sale of a product.
Sec 1.4; LO 1.4; BT: C; Difficulty: M; TOT: 2 min; AACSB:
8. Kenny and Ellen were married during their senior year in college. They planned and saved
$3,000 for a honeymoon trip to Europe after graduation. They both have offers for jobs that
begin in July. Two months before graduation, they discover that Ellen is pregnant. How
might this change in life circumstances affect their current financial plan? If you were in
their situation, would you change your honeymoon plans? Why or why not?
Answer: Unexpected events require adjusting both short-term and long-term goals, especially
when an event such as childbirth is around the corner. Kenny and Ellen will have to plan for
prenatal medical expenses and child necessities when the child is born. These can be expensive.
Furthermore, one of the parents may have to stay home to take care of the child. This will affect
their family income and ability to spend and save. All of these things will force Kenny and Ellen to
think about how their lifestyle will change and how they should spend $3,000 that they have
saved. They need to plan how they will modify and adjust their lives and goals to meet the new
responsibility. Given that Kenny and Ellen will have new and unplanned expenses and their
financial priorities will change, altering their honeymoon plans is a good idea. The couple will need
the money, as Ellen may not be able to start her new job due to her pregnancy. The couple might
consider a cheaper alternative honeymoon trip closer to home.
Sec 1.2; LO 1.2; BT: C; Difficulty: M; TOT: 3 min; AACSB: Reflective Thinking
9. Identify three areas of your personal financial plan that you expect will change when you
graduate from college. For each area, give a specific example.
Answer: After graduation, your goals will change, and you will place more emphasis on reaching
life's milestones in terms of acquiring assets and funding future needs. As an example, retirement
planning will become necessary. As a result of new employment, your financial condition will also
change, offering new opportunities to spend and acquire things that have been out of reach so far.
This will require that you prioritize your spending—deciding, for instance, how much to spend on
taking vacations, buying a car, and paying down student loans. Last, you will need to determine
how to implement financial strategies to attain your financial goals. For example, one of your major
decisions will require choosing between buying a home versus renting one.
Sec 1.2; LO 1.2; BT: C; Difficulty: M; TOT: 3 min; AACSB: Reflective Thinking
10. How does your attitude toward risk affect your financial decisions?
Answer: Attitude toward risk depends on age, wealth, income, experience, and natural tendencies.
A person with a low tolerance for risk will seek safer investments and attain returns consistent with
that risk. Someone with higher tolerance for risk may make riskier investments, such as in stocks,
in the hope of earning higher returns. However, while stocks can provide higher returns in the long
run, there is no guarantee that they will do so in the short-run. Thus, investors with low tolerance for
risk will have to spend less and save more if they want to achieve a higher standard of living in the
future.
, Sec 1.2; LO 1.2; BT: C; Difficulty: E; TOT: 3 min; AACSB: Reflective Thinking
11. Give two examples of how general economic conditions can have a beneficial or adverse
impact on your personal finances.
Answer: When the economy is booming, it creates jobs, and employment rises. Furthermore,
people's incomes rise, and they can spend as well as save more. When the economy goes through
a downturn, layoffs increase, and some people lose their jobs. This requires them to dip into savings
to meet expenses and to find new work, which may pay less. They will need to reassess their
financial goals and spending habits to conform to their new circumstances.
Sec 1.2; LO 1.2; BT: Ap; Difficulty: E; TOT: 3 min; AACSB:
12. For a college student who is single, what are two areas of financial planning that will be
particularly important?
Answer: Young singles should first focus on establishing a firm foundation and securing basic
needs. They need to develop short-term and long-term financial goals, create a budget, and make
well-thought-out cash and credit decisions, which may include student loan obligations.
Sec 1.2; LO 1.2; BT: Ap; Difficulty: E; TOT: 3 min; AACSB: Reflective Thinking
13. For a young married couple with two children under the age of 5, what are two areas of
financial planning that will be particularly important?
Answer: Young families need to establish a firm foundation, secure basic needs, and establish a
plan to build a protect wealth. It is of particular importance that they have a plan in place to take
care of the family’s needs in the event of death or disability. It is also a good time to begin a savings
plan for their children’s college education and their own retirement.
Sec 1.2; LO 1.2; BT: Ap; Difficulty: E; TOT: 3 min; AACSB: Reflective Thinking
14. For a double-income couple with children in college, what are two areas of financial planning
that will be particularly important?
Answer: This is the stage where they should be taking steps to build and protect wealth. Now that
they are almost done with funding college education expenses, they will need to focus on their own
retirement plans and estate planning.
Sec 1.2; LO 1.2; BT: Ap; Difficulty: E; TOT: 3 min; AACSB: Reflective Thinking
15. For a recently retired couple, what are two areas of financial planning that will be particularly
important?
Answer: During retirement, estate planning and cash management are the most important
components of planning. The couple wants to ensure that their wealth will last throughout their
retirement, and they need to be prepared for future medical and long-term care costs.
Sec 1.2; LO 1.2; BT: Ap; Difficulty: E; TOT: 3 min; AACSB: Reflective Thinking
Copyright © 2020 John Wiley & Sons, Inc. Bajtelsmit, Personal Finance, 2e, Instructors Manual and Solutions
, APPLICATION PROBLEM SOLUTIONS
1. Your school just announced a tuition increase of 20 percent for next year. The annual tuition
will increase from $8,000 to $9,600. If you expect that your other college-related expenses
will increase with inflation from $10,000 to $10,400, what is the expected percentage increase
in your total college costs for next year?
A. 11%
B. 20%
C. 4%
D. 16%
Answer: 11.11%
Solution: Your total costs last year were $18,000. Next year, your costs will be $9,600 + $10,400
= $20,000. Use Equation 1.1 to calculate the percentage change.
New Value
Percentage Change = −1
Old Value
($9,600+10,400)
Percentage Change = − 1 = 0.1111 or 11.11%
$18,000
Sec 1.2; LO 1.2; BT: Ap; Difficulty: M; TOT: 2 min; AACSB: Analytic
2. If your expenses total $20,000 in Year 1 and you expect the inflation rate to be 3 percent, how
much more will you have to spend to buy the same goods and services in Year 2, assuming
that all your expenses increase at the same rate as inflation?
A. $600
B. $300
C. $1,200
D. $0
Answer: $600.00
Solution: Additional Expense = Inflation Rate ∗ Current Expenses. The additional cost will be 3% x
$20,000 = $600, bringing the total cost for Year 2 to $20,600.
Sec 1.2; LO 1.2; BT: Ap; Difficulty: M; TOT: 2 min; AACSB: Analytic
3. If the Consumer Price Index rose from 250 to 255 in one year, what was the approximate
annual inflation rate?
A. 2%
B. 3%
C. 4%
D. 5%
Answer: 2%
Solution: Use Equation 1.1 to calculate the percentage change.
Edition by Vickie L. Bajtelsmit
Hello all ,
We have all what you need with best price
Our email :
Our website :
testbanks-store.com
,CHAPTER 1 Instructor Manual and Solutions
The Financial Planning Process
LEARNING OBJECTIVES
LO 1.1 Describe the personal financial planning process, and explain how the elements of a
comprehensive financial plan fit together.
LO 1.2 Describe how individual characteristics and economic factors influence personal financial
planning.
LO 1.3 Create a prioritized list of short-term and long-term personal financial goals.
LO 1.4 Know when and how to find qualified financial planning professionals.
LO 1.5 Consider opportunity costs and marginal effects in making personal finance decisions.
SUGGESTED COURSE PLAN
The first chapter can typically be covered easily in one week out of a typical 15-16 week semester. A
suggested course plan for a class that meets twice per week:
Class Topic and Reading Suggested WileyPLUS Personal Financial WileyPLUS
Period Assignment (by WileyPLUS Resources to Use in Planner Assignment Homework
Learning Pre-Class Class Assignment
Objective) Assignments
1 Ch 1 The Financial Register in Money Attitudes (PFP Interactive:
Planning Process WileyPLUS DP 1.1 Percentage 1.1) Financial Literacy
Read LO1.1 PFP Change Quiz
Process, Reflection Question
LO1.2 Factors 1: Effects of Inflation
Affecting PFP
2 Ch 1 Financial Discussion 1.2: Goal Setting (PFP 1.3 Chapter 1
Decision-making Impact of Interactive: Decision- and PFP 1.4) Homework: R:2-
Strategies Inflation making Style 3,6; P:1-2,11
Read LO1.3 Setting Reflection Question
Goals 2: Decision-making Adaptive Practice
LO1.4 Financial style Ch 1
Professional
LO 1.5 Decision-
making
File-based assignments for each of the Personal Financial Planning Worksheets have been set up in
WileyPLUS so that you can easily assign these.
Copyright © 2020 John Wiley & Sons, Inc. Bajtelsmit, Personal Finance, 2e, Instructors Manual and Solutions
,CHAPTER OUTLINE AND SUMMARY
LO 1.1 Describe the personal financial planning process, and explain how the elements of a
comprehensive financial plan fit together.
WHAT IS PERSONAL FINANCIAL PLANNING?
I. WHY STUDY PERSONAL FINANCIAL PLANNING?
A. What Are the Benefits of Personal Financial Planning?
B. Why Do People Avoid Financial Planning?
C. What Problems Can Be Caused by Poor Financial Planning?
II. THE PERSONAL FINANCIAL PLANNING PROCESS
A. Step 1: Organize Your Financial Information and Set Short-Term and Long-Term Goals
B. Step 2: Analyze Your Current Financial Status
C. Step 3: Identify and Evaluate Alternative Strategies for Achieving Your Goals
D. Step 4: Implement Your Financial Plan
E. Step 5: Monitor Your Progress and Revise Your Plan as Needed
III. ELEMENTS OF A COMPREHENSIVE FINANCIAL PLAN
LO 1.2 Describe how individual characteristics and economic factors influence personal financial
planning.
FACTORS THAT INFLUENCE FINANCIAL PLANNING
I. INDIVIDUAL CHARACTERISTICS AND YOUR FINANCIAL PLAN
A. Life Cycle Factors
B. Demographic Characteristics
C. Values and Attitudes
II. ECONOMIC FACTORS AND YOUR FINANCIAL PLAN
A. Inflation
B. Interest Rates
C. The Economy and the Job Market
D. Political Unrest and Global Issues
LO 1.3 Create a prioritized list of short-term and long-term personal financial goals.
SETTING SHORT-TERM AND LONG-TERM FINANCIAL GOALS
I. WHY GOALS ARE IMPORTANT
II. THE GOAL-SETTING PROCESS
LO 1.4 Know when and how to find qualified financial planning professionals.
,SELECTING QUALIFIED FINANCIAL PLANNING PROFESSIONALS
I. WHEN DO YOU NEED A FINANCIAL PLANNER?
II. FACTORS TO CONSIDER IN CHOOSING A FINANCIAL PLANNER
III. HOW ARE PLANNERS PAID?
LO 1.5 Consider opportunity costs and marginal effects in making personal finance decisions.
MAKING EFFECTIVE DECISIONS
I. MAKE REASONABLE ASSUMPTIONS
II. APPLY MARGINAL REASONING
III. CONSIDER OPPORTUNITY COSTS
IV. USE SENSITIVITY ANALYSIS
V. DECISION-MAKING STYLES
Copyright © 2020 John Wiley & Sons, Inc. Bajtelsmit, Personal Finance, 2e, Instructors Manual and Solutions
, TEACHING SUGGESTIONS
1. Ask students to take the Personal Financial Literacy quiz (Interactive Figure 1.1) before the first
class or during the first week. Although you will not see their scores or count their actual grades on
the quiz, it can be a helpful baseline for students and can also help to preview topics that will be
covered in the course. Have a discussion in class about what components of the course they think
will be most helpful to them. You may want them to retake that same quiz at the end of the course to
compare results.
2. Most personal finance instructors ask students to develop a personal financial plan during the
semester. The first class is an appropriate time to explain this assignment and to direct the students
to the related resources included in WileyPlus Learning Space.
3. Ask students to complete Excel Worksheet 1.1 Money Attitudes Questionnaire and, if possible, to
have family members or roommates complete it as well. Follow-up class discussion can center on
how differences in attitudes can make joint financial decisions more difficult.
4. Many students take a personal finance class because they have a financial problem they would like
to work on, such as overspending or credit card debt. Ask each student to list three short-term
personal finance goals that they would like to achieve in the coming year and three long-term goals
they would like to achieve in the next five years. Break the class into small groups and have them
compare their lists. As a class, compile a list of the most common short-term goals coming out of the
small groups. Discuss which is/are more important and why.
5. Illustrate the impact of inflation by comparing the cost of tuition at your university for the current
year to that in previous years. If you do not have this information, you can use the average tuition
costs available at trends.collegeboard.org. This example is a good way to illustrate the concept of
percentage change and annualized percentage change.
6. Use Interactive Figure 1.4 Socioeconomic Differences in Risk Aversion in class, asking students to
vote by show of hands on each of the questions. Use this to open up a discussion about why people
have different attitudes and risk aversion and how that might affect their personal finances in the
future.
7. Ask students to complete Interactive Figure 1.6 Decision-Making Styles. This could be the
springboard for a discussion related to good and bad personal finance habits and the influence that
personality traits can have on financial outcomes.
, CONCEPT REVIEW QUESTIONS
1. Allen has just graduated from college and is considering the purchase of a new or used car.
Describe how Allen can use the personal financial planning process in making this purchase.
Answer: When making a decision about buying a new or used car, Allen should know his future
financial goals and how he will fund them based on his current financial position. If his car payments
are too high or he is laid off unexpectedly, he will not be able to meet his basic needs nor achieve
his longer-term goals. He needs to make only those financial choices that are consistent with his
financial plan and will not place undue stress or burden on him.
Sec 1.1; LO 1.1; BT: C; Difficulty: E; TOT: 2 min; AACSB: Reflective Thinking
2. For each component of a comprehensive financial plan, identify a decision that must be
made.
Answer: Establish a firm foundation: What financial goals are most appropriate for you given your
personal needs and preferences? Securing basic needs: Should you borrow or pay from savings
for acquiring certain assets, such as a car, television, furniture? Wealth building and protection: How
should you diversify your investments to minimize the risk of losing your entire investment nest egg?
Sec 1.1; LO 1.1; BT: C; Difficulty: E; TOT: 3 min; AACSB:
3. Why is it important to establish a establish a firm foundation and secure your basic needs
before beginning to invest?
Answer: Before you can begin investing, you need to establish the necessary foundations by
learning about the personal financial planning process, evaluating your current financial situation,
and securing your basic needs such as transportations, housing, an emergency fund and insurance.
Once your basic needs are taken care of, you can determine what you have available to apply to
long-term goals.
Sec 1.1; LO 1.1; BT: C; Difficulty: E; TOT: 2 min; AACSB: Reflective Thinking
4. Under what circumstances might the Federal Reserve take action to increase short-term
interest rates?
Answer: The Federal Reserve is likely to raise interest rates if the economy is growing at a fast
pace, employment is at a high level, and there is an increased risk that inflation will increase. The
increased rates will slow business and household spending, which will, in turn, slow economic
growth and price inflation.
Sec 1.2; LO 1.2; BT: C; Difficulty: M; TOT: 2 min; AACSB:
5. What are the steps in the goal-setting process?
Answer:
(1) Make a wish list
(2) Prioritize your list
(3) Break large goals into subgoals
(4) Reevaluate regularly
Sec 1.3; LO 1.3; BT: K; Difficulty: E; TOT: 2 min; AACSB:
6. What factors should you consider in selecting a financial planning professional?
Copyright © 2020 John Wiley & Sons, Inc. Bajtelsmit, Personal Finance, 2e, Instructors Manual and Solutions
, Answer: A financial planner should be selected based on their knowledge, education, professional
certifications, experience, client base, fee structure, reputation, and ethical approach to financial
planning.
Sec 1.4; LO 1.4; BT: C; Difficulty: M; TOT: 2 min; AACSB:
7. What are the advantages of using a fee-only planner compared with a commission-based
planner?
Answer: A fee-only planner is more likely to make recommendations that are in the best interest of
their clients and not based on the commission they would receive from the sale of a product.
Sec 1.4; LO 1.4; BT: C; Difficulty: M; TOT: 2 min; AACSB:
8. Kenny and Ellen were married during their senior year in college. They planned and saved
$3,000 for a honeymoon trip to Europe after graduation. They both have offers for jobs that
begin in July. Two months before graduation, they discover that Ellen is pregnant. How
might this change in life circumstances affect their current financial plan? If you were in
their situation, would you change your honeymoon plans? Why or why not?
Answer: Unexpected events require adjusting both short-term and long-term goals, especially
when an event such as childbirth is around the corner. Kenny and Ellen will have to plan for
prenatal medical expenses and child necessities when the child is born. These can be expensive.
Furthermore, one of the parents may have to stay home to take care of the child. This will affect
their family income and ability to spend and save. All of these things will force Kenny and Ellen to
think about how their lifestyle will change and how they should spend $3,000 that they have
saved. They need to plan how they will modify and adjust their lives and goals to meet the new
responsibility. Given that Kenny and Ellen will have new and unplanned expenses and their
financial priorities will change, altering their honeymoon plans is a good idea. The couple will need
the money, as Ellen may not be able to start her new job due to her pregnancy. The couple might
consider a cheaper alternative honeymoon trip closer to home.
Sec 1.2; LO 1.2; BT: C; Difficulty: M; TOT: 3 min; AACSB: Reflective Thinking
9. Identify three areas of your personal financial plan that you expect will change when you
graduate from college. For each area, give a specific example.
Answer: After graduation, your goals will change, and you will place more emphasis on reaching
life's milestones in terms of acquiring assets and funding future needs. As an example, retirement
planning will become necessary. As a result of new employment, your financial condition will also
change, offering new opportunities to spend and acquire things that have been out of reach so far.
This will require that you prioritize your spending—deciding, for instance, how much to spend on
taking vacations, buying a car, and paying down student loans. Last, you will need to determine
how to implement financial strategies to attain your financial goals. For example, one of your major
decisions will require choosing between buying a home versus renting one.
Sec 1.2; LO 1.2; BT: C; Difficulty: M; TOT: 3 min; AACSB: Reflective Thinking
10. How does your attitude toward risk affect your financial decisions?
Answer: Attitude toward risk depends on age, wealth, income, experience, and natural tendencies.
A person with a low tolerance for risk will seek safer investments and attain returns consistent with
that risk. Someone with higher tolerance for risk may make riskier investments, such as in stocks,
in the hope of earning higher returns. However, while stocks can provide higher returns in the long
run, there is no guarantee that they will do so in the short-run. Thus, investors with low tolerance for
risk will have to spend less and save more if they want to achieve a higher standard of living in the
future.
, Sec 1.2; LO 1.2; BT: C; Difficulty: E; TOT: 3 min; AACSB: Reflective Thinking
11. Give two examples of how general economic conditions can have a beneficial or adverse
impact on your personal finances.
Answer: When the economy is booming, it creates jobs, and employment rises. Furthermore,
people's incomes rise, and they can spend as well as save more. When the economy goes through
a downturn, layoffs increase, and some people lose their jobs. This requires them to dip into savings
to meet expenses and to find new work, which may pay less. They will need to reassess their
financial goals and spending habits to conform to their new circumstances.
Sec 1.2; LO 1.2; BT: Ap; Difficulty: E; TOT: 3 min; AACSB:
12. For a college student who is single, what are two areas of financial planning that will be
particularly important?
Answer: Young singles should first focus on establishing a firm foundation and securing basic
needs. They need to develop short-term and long-term financial goals, create a budget, and make
well-thought-out cash and credit decisions, which may include student loan obligations.
Sec 1.2; LO 1.2; BT: Ap; Difficulty: E; TOT: 3 min; AACSB: Reflective Thinking
13. For a young married couple with two children under the age of 5, what are two areas of
financial planning that will be particularly important?
Answer: Young families need to establish a firm foundation, secure basic needs, and establish a
plan to build a protect wealth. It is of particular importance that they have a plan in place to take
care of the family’s needs in the event of death or disability. It is also a good time to begin a savings
plan for their children’s college education and their own retirement.
Sec 1.2; LO 1.2; BT: Ap; Difficulty: E; TOT: 3 min; AACSB: Reflective Thinking
14. For a double-income couple with children in college, what are two areas of financial planning
that will be particularly important?
Answer: This is the stage where they should be taking steps to build and protect wealth. Now that
they are almost done with funding college education expenses, they will need to focus on their own
retirement plans and estate planning.
Sec 1.2; LO 1.2; BT: Ap; Difficulty: E; TOT: 3 min; AACSB: Reflective Thinking
15. For a recently retired couple, what are two areas of financial planning that will be particularly
important?
Answer: During retirement, estate planning and cash management are the most important
components of planning. The couple wants to ensure that their wealth will last throughout their
retirement, and they need to be prepared for future medical and long-term care costs.
Sec 1.2; LO 1.2; BT: Ap; Difficulty: E; TOT: 3 min; AACSB: Reflective Thinking
Copyright © 2020 John Wiley & Sons, Inc. Bajtelsmit, Personal Finance, 2e, Instructors Manual and Solutions
, APPLICATION PROBLEM SOLUTIONS
1. Your school just announced a tuition increase of 20 percent for next year. The annual tuition
will increase from $8,000 to $9,600. If you expect that your other college-related expenses
will increase with inflation from $10,000 to $10,400, what is the expected percentage increase
in your total college costs for next year?
A. 11%
B. 20%
C. 4%
D. 16%
Answer: 11.11%
Solution: Your total costs last year were $18,000. Next year, your costs will be $9,600 + $10,400
= $20,000. Use Equation 1.1 to calculate the percentage change.
New Value
Percentage Change = −1
Old Value
($9,600+10,400)
Percentage Change = − 1 = 0.1111 or 11.11%
$18,000
Sec 1.2; LO 1.2; BT: Ap; Difficulty: M; TOT: 2 min; AACSB: Analytic
2. If your expenses total $20,000 in Year 1 and you expect the inflation rate to be 3 percent, how
much more will you have to spend to buy the same goods and services in Year 2, assuming
that all your expenses increase at the same rate as inflation?
A. $600
B. $300
C. $1,200
D. $0
Answer: $600.00
Solution: Additional Expense = Inflation Rate ∗ Current Expenses. The additional cost will be 3% x
$20,000 = $600, bringing the total cost for Year 2 to $20,600.
Sec 1.2; LO 1.2; BT: Ap; Difficulty: M; TOT: 2 min; AACSB: Analytic
3. If the Consumer Price Index rose from 250 to 255 in one year, what was the approximate
annual inflation rate?
A. 2%
B. 3%
C. 4%
D. 5%
Answer: 2%
Solution: Use Equation 1.1 to calculate the percentage change.
