,SOLUTION MANUAL FOR Introduction to Personal
Finance 3e Grable
Notes
1- The file is chapter after chapter.
2- We have shown you few pages sample.
3- The file contains all Appendix and Excel sheet
if it exists.
4- We have all what you need, we make update
at every time. There are many new editions
waiting you.
5- If you think you purchased the wrong file You
can contact us at every time, we can replace it
with true one.
Our email:
, Chapter 2—Solutions Manual
Tools for Your Financial Journey
Introduction to Personal Finance: Beginning Your Financial Journey
By John Grable and Lance Palmer
Learning Objectives
2.1 Discuss the role of compound interest in managing your finances.
2.2 Identify how time value of money concepts affect financial goals and decisions.
2.3 Calculate the effect of time and interest on financial decisions pertaining to planning,
investing, and borrowing.
2.4 Describe how to use a balance sheet as a financial-management tool to track changes in
assets, liabilities, and net worth.
2.5 Explain how to use a personal budget to track and forecast cash flow to achieve financial
goals.
2.6 Explain how consumers make decisions when navigating the economic marketplace.
2.7 Describe how to create a personal financial plan.
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 is specific to the question. The instructor
may want to add or delete grading criteria (rows) depending on the topic and assignment.
How each grading criteria 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
criteria (row) is worth up to 4 pts (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 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 significant incomplete and
question
thoroughly details detail limited
Amounts and
Much of the Does not
information Some of the
Answer is realistic / response is represent realistic
discussed are response is
relevant irrelevant, or relevant
relevant and irrelevant to the
unrealistic, or understanding of
pertinent to the question
overly simplistic topic.
question
Organization/clarity
Adequate Limited
of thought Well organized Poor organization
organization organization
(25% of score)
A clear conclusion
Appropriate Conclusion or
or recommendation
recommendations recommendation Conclusion or No conclusion/
is presented that is
and conclusions is mostly clear recommendation recommendation
appropriate given
are reached. and appropriate is incomplete provided
the content
(25% of score) 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.
,2.1 Discuss the role of compound interest in managing your
finances.
2.1 Multiple-Choice Questions
1. c. Douglas, who is borrowing money to pay for a vacation.
Answer: c; Section: 2.1; LO: 2.1; BT: Ap; Difficulty: E; TOT: 2 min; AACSB: A
2. a. interest being reinvested and earning additional interest.
Answer: a; Section: 2.1; LO: 2.1; BT: K; Difficulty: E; TOT: 2 min; AACSB: K
3. a. The longer you let your money grow, the more it will produce.
Answer: a; Section: 2.1; LO: 2.1; BT: K; Difficulty: E; TOT: 2 min; AACSB: K
4. b. annual percentage rate.
Answer: b; Section: 2.1; LO: 2.1; BT: K; Difficulty: E; TOT: 2 min; AACSB: K
5. a. 22.80%
Solution: 1.9% x 12 = 22.80%.
Answer: a; Section: 2.1; LO: 2.1; BT: Ap; Difficulty: M; TOT: 2 min; AACSB: A
6. a. daily.
Answer: a; Section: 2.1; LO: 2.1; BT: C; Difficulty: E; TOT: 2 min; AACSB: A
7. c. 12.68%
Solution: (1+.01)12 - 1 = 12.68%.
Answer: c; Section: 2.1; LO: 2.1; BT: K; Difficulty: M; TOT: 2 min; AACSB: A
8. c. Earning periodic interest rate of 1.25% compounded semiannually
Solution:
(1+.002)12 - 1 = 2.43% APY
(1+.006)4 - 1 = 2.42% APY
(1+.0125)2 - 1 = 2.52% APY
(1+.025)1 - 1 = 2.50% APY
Answer: c; Section: 2.1; LO: 2.1; BT: An; Difficulty: M; TOT: 2 min; AACSB: A
9. c. 11 years
Solution: 72/6.50 = 11.08.
Answer: c; Section: 2.1; LO: 2.1; BT: Ap; Difficulty: E; TOT: 2 min; AACSB: 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.
,10. b. Ravi, who earns 8% interest over a 10-year period.
Solution:
Amal: Doubles money in 24 years (72/3)
Ravi: Doubles money in 9 years (72/9)
Gayle: Doubles money in 14 years (72/5)
Luis: Doubles money in 36 years (72/2)
Answer: b; Section: 2.1; LO: 2.1; BT: An; Difficulty: H; TOT: 2 min; AACSB: A
2.1 Adventures in Personal Finance
Short Answer
1. Answer: 1.25% APY Solution: The equivalent APY for an APR of 1.2% compounded
monthly is APY = [1+(.012/12)12] – 1 = .01207 or 1.207%. The 1.25% APY account is the
better offer.
Section: 2.1; LO: 2.1; BT: An; Difficulty: M; TOT: 10 min; AACSB: A
2. Answer: It would take 20 years for your money to double at an APY of 3.6%. It would take
16 years to double if earning an APY of 4.5%.
Section: 2.1; LO: 2.1; BT: An; Difficulty: M; TOT: 5 min; AACSB: A
3. Answer: $3.83. Solution: Interest would be charged based on the monthly periodic rate,
which is the APR divided by 12, or 22.99%/12 = 1.916% monthly. $200 X 1.916% = $3.83
in interest charges.
Section: 2.1; LO: 2.1; BT: An; Difficulty: H; TOT: 10 min; AACSB: A
Explore
1. Answer: APR = 203%; APY = 625%; credit card.
Solution: Clearly your friend would be better off using his credit card and paying an APR
of 22.99% rather than 203.00%.
APR = Periodic Interest Rate × Number of Periods in the Year
APR = ($5/$100) × (365 days / 9 days) = 0.05 × 40.6 = 2.03, or 203%
APY = [(1 + Periodic Interest Rate) ^ Number of periods in year] – 1
APY = [(1 + ($5/$100))365/9] – 1
APY = [(1.05)40.6] – 1
APY = 7.249 – 1 = 6.249 or 625%
Section: 2.1; LO: 2.1; BT: S; Difficulty: H; TOT: 20 min; AACSB: 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.
,2. Answer: 1 year = $138; 2 years = $190.44; 5 years = $500.49; 7 years = $953.13; 10
years = $2,504.90.
Solution: After 1 year the balance would be $138 found by FV = 100(1+.38)1); after 2
years it would be $190.44 found by FV = 100(1+.38)2; after 5 years it would be $500.49
found by FV = 100(1+.38)5; after 7 years it would be $953.13; after 10 years it would be
$2,504.90.
Section: 2.1; LO: 2.1; BT: An; Difficulty: M; TOT: 15 min; AACSB: A
Expanded Learning Activity
Answer: High-quality responses should include a chart containing the APY and APR by
institution, a written summary, and recommendation on the best option for those seeking
to maximize their interest earned. Please refer to the sample writing assignment rubric in
the solutions manual.
Section: 2.1; LO: 2.1; BT: S; Difficulty: M; TOT: 30 min; AACSB: A, C
2.1 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. The return you earn on your savings is called:
a. education.
b. training.
c. interest.
d. human capital.
Answer: c; Section: 2.1; LO: 2.1; BT: K; Difficulty: E; TOT: 2 min; AACSB: K
2. In order to earn a higher rate of interest on your savings, you must:
a. loan your money for a longer period of time.
b. take on more risk.
c. require that the borrower use collateral to secure the loan.
d. either loan your money for a longer period of time or take on more risk.
Answer: b; Section: 2.1; LO: 2.1; BT: C; Difficulty: M; TOT: 2 min; AACSB: A
3. What is used when comparing savings rate offers?
a. Annual Percentage Yield.
b. Annual Percentage Rate.
c. Compound Rate of Return.
d. Geometric Average.
Answer: a; Section: 2.1; LO: 2.1; BT: K; Difficulty: E; TOT: 2 min; AACSB: K
© 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.
,4. Mary uses her credit card frequently. Which of the following is the best strategy to
minimize the amount of interest paid when using a credit card?
a. Pay off the credit card balance monthly.
b. Search for and use a credit card with the lowest APR.
c. Pay more than the minimum monthly balance each month.
d. Search for and use a credit card that compounds interest monthly.
Answer: a; Section: 2.1; LO: 2.1; BT: C; Difficulty: E; TOT: 2 min; AACSB: A
5. Tula can earn ½ of 1 percent interest on her savings each month. What is Tula’s APY?
a. 5.00%
b. 5.17%
c. 6.00%
d. 6.17%
Answer: d
Solution: (1+.005)12 - 1 = 6.17
Section: 2.1; LO: 2.1; BT: Ap; Difficulty: M; TOT: 2 min; AACSB: 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.
,2.2 Identify how time value of money concepts affect financial goals
and decisions.
2.2 Multiple-Choice Questions
1. c. time value of money calculations.
Answer: c; Section: 2.2; LO: 2.2; BT: K; Difficulty: E; TOT: 2 min; AACSB: K
2. c. Three inputs (the interest rate, and time period, and payment amount).
Answer: c; Section: 2.2; LO: 2.2; BT: C; Difficulty: E; TOT: 2 min; AACSB: A
3. b. annuity.
Answer: b; Section: 2.2; LO: 2.2; BT: C; Difficulty: E; TOT: 2 min; AACSB: K
4. b. a series of payments occurring at the beginning of the month.
Answer: b; Section: 2.2; LO: 2.2; BT: C; Difficulty: E; TOT: 2 min; AACSB: K
5. b. future value of a lump sum.
Answer: b; Section: 2.2; LO: 2.2; BT: C; Difficulty: E; TOT: 2 min; AACSB: K
6. c. future value of an annuity.
Answer: c; Section: 2.2; LO: 2.2; BT: Ap; Difficulty: M; TOT: 2 min; AACSB: K
7. d. Both calculate the present value of the annuity payments and compare it to the
$100,000 lump sum option and calculate the monthly payments (annuity) that could be
generated using a $100,000 PV and compare the payments to the $1,000 payment
option.
Answer: d; Section: 2.2; LO: 2.2; BT: C; Difficulty: M; TOT: 2 min; AACSB: A
8. b. Amortization schedule.
Answer: b; Section: 2.2; LO: 2.2; BT: C; Difficulty: M; TOT: 2 min; AACSB: K
9. c. Solve for the number of periods or use the Rule of 72.
Answer: c; Section: 2.2; LO: 2.2; BT: C; Difficulty: E; TOT: 2 min; AACSB: A
10. b. prefer
Answer: b; Section: 2.2; LO: 2.2; BT: C; Difficulty: M; TOT: 2 min; AACSB: A
2.2 Adventures in Personal Finance
Short Answer
1.
Answer: Using the rule of 72 it would take 12.2 years (72/5.9 = 12.2).
© 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.
, Section: 2.2; LO: 2.2; BT: An; Difficulty: M; TOT: 20 min; AACSB: A, T
2.
Answer: Using the rule of 72 it will take 6.5 years (72/11 = 6.5).
Section: 2.2; LO: 2.2; BT: An; Difficulty: E; TOT: 20 min; AACSB: A, T
3.
Answer: Beth will have $11,733.20.
Solution: Create a FV of a lump sum time line using the future value formulas. After one
year she will have $2,000. After two years she will have $4,160 ($2,000 x 1.08 = $2,160
plus an additional $2,000. After three years she will have $6,492.80 ($4,160 x 1.08 =
$4,492.80 plus $2,000). After four years she will have $9,012.22 ($6,492.80 x 1.08 =
$7,012.22 plus $2,000). After five years she will have $11,733.20 ($9,012.22 x 1.08 =
$9,733.20 plus $2,000).
Section: 2.2; LO: 2.22; BT: An; Difficulty: H; TOT: 30 min; AACSB: A
Explore
1. Answer: High-quality responses should include clear identification of five online
calculators and a comparison of the results from those findings and summary of the
comparison. Please refer to the sample writing assignment rubric in the solutions manual.
Section: 2.2; LO: 2.23; BT: An; Difficulty: E; TOT: 30 min; AACSB: C, T
2. Answer: High-quality responses should include specific interest rates.
Section: 2.2; LO: 2.2; BT: S; Difficulty: M; TOT: 30 min; AACSB: n/a
Expanded Learning Activity
Answer: High-quality responses should include a discussion of who was asked about
retirement, how they use TVM, and whether others made the calculations for them.
Please refer to the sample writing assignment rubric in the solutions manual.
Section: 2.2; LO: 2.2; BT: An; Difficulty: M; TOT: 120 min; AACSB: A, C
2.2 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. TVM calculations should be used when the following three things are part of a financial
goal.
a. Money, time, and interest.
b. Risk, money, and insurance.
© 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 3e Grable
Notes
1- The file is chapter after chapter.
2- We have shown you few pages sample.
3- The file contains all Appendix and Excel sheet
if it exists.
4- We have all what you need, we make update
at every time. There are many new editions
waiting you.
5- If you think you purchased the wrong file You
can contact us at every time, we can replace it
with true one.
Our email:
, Chapter 2—Solutions Manual
Tools for Your Financial Journey
Introduction to Personal Finance: Beginning Your Financial Journey
By John Grable and Lance Palmer
Learning Objectives
2.1 Discuss the role of compound interest in managing your finances.
2.2 Identify how time value of money concepts affect financial goals and decisions.
2.3 Calculate the effect of time and interest on financial decisions pertaining to planning,
investing, and borrowing.
2.4 Describe how to use a balance sheet as a financial-management tool to track changes in
assets, liabilities, and net worth.
2.5 Explain how to use a personal budget to track and forecast cash flow to achieve financial
goals.
2.6 Explain how consumers make decisions when navigating the economic marketplace.
2.7 Describe how to create a personal financial plan.
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 is specific to the question. The instructor
may want to add or delete grading criteria (rows) depending on the topic and assignment.
How each grading criteria 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
criteria (row) is worth up to 4 pts (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 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 significant incomplete and
question
thoroughly details detail limited
Amounts and
Much of the Does not
information Some of the
Answer is realistic / response is represent realistic
discussed are response is
relevant irrelevant, or relevant
relevant and irrelevant to the
unrealistic, or understanding of
pertinent to the question
overly simplistic topic.
question
Organization/clarity
Adequate Limited
of thought Well organized Poor organization
organization organization
(25% of score)
A clear conclusion
Appropriate Conclusion or
or recommendation
recommendations recommendation Conclusion or No conclusion/
is presented that is
and conclusions is mostly clear recommendation recommendation
appropriate given
are reached. and appropriate is incomplete provided
the content
(25% of score) 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.
,2.1 Discuss the role of compound interest in managing your
finances.
2.1 Multiple-Choice Questions
1. c. Douglas, who is borrowing money to pay for a vacation.
Answer: c; Section: 2.1; LO: 2.1; BT: Ap; Difficulty: E; TOT: 2 min; AACSB: A
2. a. interest being reinvested and earning additional interest.
Answer: a; Section: 2.1; LO: 2.1; BT: K; Difficulty: E; TOT: 2 min; AACSB: K
3. a. The longer you let your money grow, the more it will produce.
Answer: a; Section: 2.1; LO: 2.1; BT: K; Difficulty: E; TOT: 2 min; AACSB: K
4. b. annual percentage rate.
Answer: b; Section: 2.1; LO: 2.1; BT: K; Difficulty: E; TOT: 2 min; AACSB: K
5. a. 22.80%
Solution: 1.9% x 12 = 22.80%.
Answer: a; Section: 2.1; LO: 2.1; BT: Ap; Difficulty: M; TOT: 2 min; AACSB: A
6. a. daily.
Answer: a; Section: 2.1; LO: 2.1; BT: C; Difficulty: E; TOT: 2 min; AACSB: A
7. c. 12.68%
Solution: (1+.01)12 - 1 = 12.68%.
Answer: c; Section: 2.1; LO: 2.1; BT: K; Difficulty: M; TOT: 2 min; AACSB: A
8. c. Earning periodic interest rate of 1.25% compounded semiannually
Solution:
(1+.002)12 - 1 = 2.43% APY
(1+.006)4 - 1 = 2.42% APY
(1+.0125)2 - 1 = 2.52% APY
(1+.025)1 - 1 = 2.50% APY
Answer: c; Section: 2.1; LO: 2.1; BT: An; Difficulty: M; TOT: 2 min; AACSB: A
9. c. 11 years
Solution: 72/6.50 = 11.08.
Answer: c; Section: 2.1; LO: 2.1; BT: Ap; Difficulty: E; TOT: 2 min; AACSB: 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.
,10. b. Ravi, who earns 8% interest over a 10-year period.
Solution:
Amal: Doubles money in 24 years (72/3)
Ravi: Doubles money in 9 years (72/9)
Gayle: Doubles money in 14 years (72/5)
Luis: Doubles money in 36 years (72/2)
Answer: b; Section: 2.1; LO: 2.1; BT: An; Difficulty: H; TOT: 2 min; AACSB: A
2.1 Adventures in Personal Finance
Short Answer
1. Answer: 1.25% APY Solution: The equivalent APY for an APR of 1.2% compounded
monthly is APY = [1+(.012/12)12] – 1 = .01207 or 1.207%. The 1.25% APY account is the
better offer.
Section: 2.1; LO: 2.1; BT: An; Difficulty: M; TOT: 10 min; AACSB: A
2. Answer: It would take 20 years for your money to double at an APY of 3.6%. It would take
16 years to double if earning an APY of 4.5%.
Section: 2.1; LO: 2.1; BT: An; Difficulty: M; TOT: 5 min; AACSB: A
3. Answer: $3.83. Solution: Interest would be charged based on the monthly periodic rate,
which is the APR divided by 12, or 22.99%/12 = 1.916% monthly. $200 X 1.916% = $3.83
in interest charges.
Section: 2.1; LO: 2.1; BT: An; Difficulty: H; TOT: 10 min; AACSB: A
Explore
1. Answer: APR = 203%; APY = 625%; credit card.
Solution: Clearly your friend would be better off using his credit card and paying an APR
of 22.99% rather than 203.00%.
APR = Periodic Interest Rate × Number of Periods in the Year
APR = ($5/$100) × (365 days / 9 days) = 0.05 × 40.6 = 2.03, or 203%
APY = [(1 + Periodic Interest Rate) ^ Number of periods in year] – 1
APY = [(1 + ($5/$100))365/9] – 1
APY = [(1.05)40.6] – 1
APY = 7.249 – 1 = 6.249 or 625%
Section: 2.1; LO: 2.1; BT: S; Difficulty: H; TOT: 20 min; AACSB: 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.
,2. Answer: 1 year = $138; 2 years = $190.44; 5 years = $500.49; 7 years = $953.13; 10
years = $2,504.90.
Solution: After 1 year the balance would be $138 found by FV = 100(1+.38)1); after 2
years it would be $190.44 found by FV = 100(1+.38)2; after 5 years it would be $500.49
found by FV = 100(1+.38)5; after 7 years it would be $953.13; after 10 years it would be
$2,504.90.
Section: 2.1; LO: 2.1; BT: An; Difficulty: M; TOT: 15 min; AACSB: A
Expanded Learning Activity
Answer: High-quality responses should include a chart containing the APY and APR by
institution, a written summary, and recommendation on the best option for those seeking
to maximize their interest earned. Please refer to the sample writing assignment rubric in
the solutions manual.
Section: 2.1; LO: 2.1; BT: S; Difficulty: M; TOT: 30 min; AACSB: A, C
2.1 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. The return you earn on your savings is called:
a. education.
b. training.
c. interest.
d. human capital.
Answer: c; Section: 2.1; LO: 2.1; BT: K; Difficulty: E; TOT: 2 min; AACSB: K
2. In order to earn a higher rate of interest on your savings, you must:
a. loan your money for a longer period of time.
b. take on more risk.
c. require that the borrower use collateral to secure the loan.
d. either loan your money for a longer period of time or take on more risk.
Answer: b; Section: 2.1; LO: 2.1; BT: C; Difficulty: M; TOT: 2 min; AACSB: A
3. What is used when comparing savings rate offers?
a. Annual Percentage Yield.
b. Annual Percentage Rate.
c. Compound Rate of Return.
d. Geometric Average.
Answer: a; Section: 2.1; LO: 2.1; BT: K; Difficulty: E; TOT: 2 min; AACSB: K
© 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.
,4. Mary uses her credit card frequently. Which of the following is the best strategy to
minimize the amount of interest paid when using a credit card?
a. Pay off the credit card balance monthly.
b. Search for and use a credit card with the lowest APR.
c. Pay more than the minimum monthly balance each month.
d. Search for and use a credit card that compounds interest monthly.
Answer: a; Section: 2.1; LO: 2.1; BT: C; Difficulty: E; TOT: 2 min; AACSB: A
5. Tula can earn ½ of 1 percent interest on her savings each month. What is Tula’s APY?
a. 5.00%
b. 5.17%
c. 6.00%
d. 6.17%
Answer: d
Solution: (1+.005)12 - 1 = 6.17
Section: 2.1; LO: 2.1; BT: Ap; Difficulty: M; TOT: 2 min; AACSB: 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.
,2.2 Identify how time value of money concepts affect financial goals
and decisions.
2.2 Multiple-Choice Questions
1. c. time value of money calculations.
Answer: c; Section: 2.2; LO: 2.2; BT: K; Difficulty: E; TOT: 2 min; AACSB: K
2. c. Three inputs (the interest rate, and time period, and payment amount).
Answer: c; Section: 2.2; LO: 2.2; BT: C; Difficulty: E; TOT: 2 min; AACSB: A
3. b. annuity.
Answer: b; Section: 2.2; LO: 2.2; BT: C; Difficulty: E; TOT: 2 min; AACSB: K
4. b. a series of payments occurring at the beginning of the month.
Answer: b; Section: 2.2; LO: 2.2; BT: C; Difficulty: E; TOT: 2 min; AACSB: K
5. b. future value of a lump sum.
Answer: b; Section: 2.2; LO: 2.2; BT: C; Difficulty: E; TOT: 2 min; AACSB: K
6. c. future value of an annuity.
Answer: c; Section: 2.2; LO: 2.2; BT: Ap; Difficulty: M; TOT: 2 min; AACSB: K
7. d. Both calculate the present value of the annuity payments and compare it to the
$100,000 lump sum option and calculate the monthly payments (annuity) that could be
generated using a $100,000 PV and compare the payments to the $1,000 payment
option.
Answer: d; Section: 2.2; LO: 2.2; BT: C; Difficulty: M; TOT: 2 min; AACSB: A
8. b. Amortization schedule.
Answer: b; Section: 2.2; LO: 2.2; BT: C; Difficulty: M; TOT: 2 min; AACSB: K
9. c. Solve for the number of periods or use the Rule of 72.
Answer: c; Section: 2.2; LO: 2.2; BT: C; Difficulty: E; TOT: 2 min; AACSB: A
10. b. prefer
Answer: b; Section: 2.2; LO: 2.2; BT: C; Difficulty: M; TOT: 2 min; AACSB: A
2.2 Adventures in Personal Finance
Short Answer
1.
Answer: Using the rule of 72 it would take 12.2 years (72/5.9 = 12.2).
© 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.
, Section: 2.2; LO: 2.2; BT: An; Difficulty: M; TOT: 20 min; AACSB: A, T
2.
Answer: Using the rule of 72 it will take 6.5 years (72/11 = 6.5).
Section: 2.2; LO: 2.2; BT: An; Difficulty: E; TOT: 20 min; AACSB: A, T
3.
Answer: Beth will have $11,733.20.
Solution: Create a FV of a lump sum time line using the future value formulas. After one
year she will have $2,000. After two years she will have $4,160 ($2,000 x 1.08 = $2,160
plus an additional $2,000. After three years she will have $6,492.80 ($4,160 x 1.08 =
$4,492.80 plus $2,000). After four years she will have $9,012.22 ($6,492.80 x 1.08 =
$7,012.22 plus $2,000). After five years she will have $11,733.20 ($9,012.22 x 1.08 =
$9,733.20 plus $2,000).
Section: 2.2; LO: 2.22; BT: An; Difficulty: H; TOT: 30 min; AACSB: A
Explore
1. Answer: High-quality responses should include clear identification of five online
calculators and a comparison of the results from those findings and summary of the
comparison. Please refer to the sample writing assignment rubric in the solutions manual.
Section: 2.2; LO: 2.23; BT: An; Difficulty: E; TOT: 30 min; AACSB: C, T
2. Answer: High-quality responses should include specific interest rates.
Section: 2.2; LO: 2.2; BT: S; Difficulty: M; TOT: 30 min; AACSB: n/a
Expanded Learning Activity
Answer: High-quality responses should include a discussion of who was asked about
retirement, how they use TVM, and whether others made the calculations for them.
Please refer to the sample writing assignment rubric in the solutions manual.
Section: 2.2; LO: 2.2; BT: An; Difficulty: M; TOT: 120 min; AACSB: A, C
2.2 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. TVM calculations should be used when the following three things are part of a financial
goal.
a. Money, time, and interest.
b. Risk, money, and insurance.
© 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.
