the length of time the money remains deposited.
• Future value, also referred to as compounding,
is the amount to which current savings will increase
based on a certain interest rate and a certain time
period. Future value calculations may be used for both
a single amount and equal deposits. (See Exhibit 1-8.)
• Present value, also referred to as discounting, is
the current value for a future sum based on a certain
interest rate and a certain time period. Present value
calculations may also be used for both a single amount
and a series of amounts. (See Exhibit 1-8.)
• Concept Check 1-4
ACHIEVING FINANCIAL GOALS
• Throughout life, each individual has needs that the
intelligent use of available financial resources can
satisfy. Financial planning involves deciding how to
obtain, protect, and use those resources.
Components of Personal Financial Planning
• The eight major components of personal financial
• Text Highlight: Exhibit 1-9
offers an overview of the course.
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Instructor’s Manual for Kapoor et al. Personal Finance 7CE.
planning are:
1. obtaining financial resources
2. planning for current living expenses and future
financial security
3. saving for emergencies, unexpected bills,
replacement of major items, and special purchases
4. borrowing in a responsible manner
5. spending to meet daily living needs
6. managing risk through insurance decisions
7. investing for long-term financial security
8. retirement and estate planning
Developing a Flexible Financial Plan
• A financial plan is a formalized report that
summarizes your current financial situation, analyzes
your financial needs, and recommends a direction for
your financial activities.
• Financial activities may be organized on the basis
of spending, saving, investing, and borrowing
decisions.
Implementing Your Financial Plan
• The most important strategy for success is the
development of financial habits that will contribute to
both short-term satisfaction and long-term financial
security.
• Text Highlight: Exhibit 1-
10 presents an overview of a
financial plan which includes
examples of goals, short-term
strategies, and long-term
strategies.
• Using a set spending plan will help you stay
within your income while you save and invest for the
future.
• Concept Check 1-5
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Instructor’s Manual for Kapoor et al. Personal Finance 7CE.
CONCLUDING ACTIVITIES
• Point out the chapter summary and key terms in the text margin.
• Discuss selected end-of-chapter Financial Planning Problems, Financial Planning Activities, and Life
Situation Case.
• Use the Chapter Quiz in the Instructor’s Manual.
• Have students start a journal of personal finance information and readings that they encounter in the
daily newspaper, news magazines, personal business periodicals, and on the World Wide Web.
• Have students create a case problem for class use based on a personal financial experience they have
experienced or observed.
CHAPTER 1 QUIZ ANSWERS
True-False Multiple Choice
1. T 8. B
2. F 9. D
3. T 10. C
4. T 11. A
5. T 12. D
6. F 13. A
7. F 14. B
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Instructor’s Manual for Kapoor et al. Personal Finance 7CE.
Name ________________________________________ Date ____________________________
CHAPTER 1 QUIZ
TRUE-FALSE
_____1. A major purpose of personal financial planning is future economic security.
_____2. 2 Personal financial planning starts by creating a plan of action.
_____3. Interest rate risk and inflation risk can affect any financial decision.
_____4. Inflation reduces the buying power of a dollar.
_____5. Changes in interest rates affect your cost of borrowing and your return on investments,
thus it is one of the risks you face when making financial decisions.
_____6. Intermediate goals have a time frame of two to seven years.
_____7. The life cycle approach is the idea that an average person goes through three basic stages
in personal financial management.
MULTIPLE CHOICE
_____8. _ Opportunity cost refers to
a. your personal values.
b. trade-offs when a decision is made.
c. current economic conditions.
d. commonly accepted financial goals.
_____9. _ The first step in the financial planning process is to