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Personal Finance: Turning Money into Wealth, Fourth Edition

by Arthur J. Keown - Virginia Polytechnic Institute and State University R.B. Pamplin Professor of Finance

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Copyright, iv
About the Author, vi
Preface, xxiii
1. Financial Planning, 1
1. The Financial Planning Process, 2
Facing Financial Challenges, 4
The Personal Financial Planning Process, 5
Establishing Your Financial Goals, 7
Thinking about Your Career, 11
What Determines Your Income?, 16
Fifteen Principles of Personal Finance, 16
Summary, 23
Review Questions, 24
Problems and Activities, 24
Suggested Projects, 25
2. Measuring Your Financial Health and Making a Plan, 28
Using a Balance Sheet to Measure Your Wealth, 31
Using an Income Statement to Trace Your Money, 37
Using Ratios: Financial Thermometers, 42
Record Keeping, 45
Putting It All Together: Budgeting, 47
Hiring a Professional, 51
Summary, 53
Review Questions, 54
Problems and Activities, 54
Suggested Projects, 55
3. Understanding the Time Value of Money, 58
Compound Interest and Future Values, 60
Using a Financial Calculator, 65
Compounding and the Power of Time, 66
The Importance of the Interest Rate, 68
Present Value, 69
Annuities, 73
Amortized Loans, 80
Summary, 83
Review Questions, 84
Problems and Activities, 84
Suggested Projects, 85
4. Tax Planning and Strategies, 88
Taxes Then, Taxes Now, 90
The Federal Income Tax Structure, 91
Other Taxes, 97
Calculating Your Taxes, 98
Other Filing Considerations, 110
Model Taxpayers: The Taylors File Their 2004 Return, 114
Tax Strategies to Lower Your Taxes, 119
Summary, 124
Review Questions, 125
Problems and Activities, 125
Suggested Projects, 126
Continuing Case: Cory and Tisha Dumont, 130
2. Managing Your Money, 134
5. Cash or Liquid Asset Management, 134
Managing Liquid Assets, 136
Automating Savings: Pay Yourself First, 136
Financial Institutions, 137
Cash Management Alternatives, 140
Comparing Cash Management Alternatives, 146
Establishing and Using a Checking Account, 149
Electronic Funds Transfers, 155
Summary, 158
Review Questions, 159
Problems and Activities, 159
Suggested Projects, 160
6. Using Credit Cards: The Role of Open Credit, 164
A First Look at Credit Cards and Open Credit, 166
The Pros and Cons of Credit Cards, 170
Choosing a Source of Open Credit, 172
Getting a Credit Card, 176
The Key To Getting Credit: Your Credit Score, 177
Consumer Credit Rights, 182
The Credit Bureau and Your Rights, 182
Identity Theft, 184
Controlling and Managing Your Credit Cards and Open Credit, 185
Summary, 187
Review Questions, 188
Problems and Activities, 189
Suggested Projects, 190
7. Using Consumer Loans: The Role of Planned Borrowing, 194
Characteristics of Consumer Loans, 196
The Loan Contract, 197
Special Types of Consumer Loans, 199
Cost and Early Payment of Consumer Loans, 201
Cost of Single-Payment Loans, 203
Sources of Consumer Loans, 210
How and When to Borrow, 213
Controlling Your Use of Debt, 215
What To Do If You Can’t Pay Your Bills, 216
Summary, 219
Review Questions, 219
Problems and Activities, 220
Suggested Projects, 221
8. The Home and Automobile Decision, 224
Smart Buying, 226
Smart Buying in Action: Buying a Vehicle, 227
Smart Buying in Action: Housing, 236
Summary, 261
Review Questions, 262
Problems and Activities, 263
Suggested Projects, 264
Continuing Case: Cory and Tisha Dumont, 267
3. Protecting Yourself with Insurance, 270
9. Life and Health Insurance, 270
The Logic Behind Insurance: Risk Management, 272
Determining Your Life Insurance Needs, 273
Major Types of Life Insurance, 277
Fine-Tuning Your Policy: Contract Clauses and Riders, 285
Buying Life Insurance, 289
Health Insurance, 292
Basic Health Care Choices, 294
Controlling Health Care Costs, 302
Finding the Perfect Plan, 305
Disability Insurance, 306
Long-Term Care Insurance, 309
Summary, 311
Review Questions, 313
Problems and Activities, 314
Suggested Projects, 315
10. Property and Liability Insurance, 318
Protecting Your Home, 320
Your Insurance Needs, 325
Making Your Coverage Work, 331
Automobile Insurance, 332
Summary, 340
Review Questions, 341
Problems and Activities, 342
Suggested Projects, 343
Continuing Case: Cory and Tisha Dumont, 346
4. Managing Your Investments, 348
11. Investment Basics, 348
Before You Invest, 350
Market Interest Rates, 356
A Look at Risk–Return Trade-Offs, 359
The Time Dimension of Investing and Asset Allocation, 364
What You Should Know About Efficient Markets, 371
Summary, 373
Review Questions, 374
Problems and Activities, 374
Suggested Projects, 375
12. Securities Markets, 378
Security Markets, 380
How Securities Are Traded, 388
Dealing with Brokers, 392
Sources of Investment Information, 399
Summary, 403
Review Questions, 404
Problems and Activities, 405
Suggested Projects, 406
13. Investing in Stocks, 410
Why Consider Stocks?, 412
The Language of Common Stocks, 414
Stock Indexes: Measuring the Movements in the Market, 417
General Classifications of Common Stock, 420
Valuation of Common Stock, 421
Stock Investment Strategies, 426
Risks Associated with Common Stocks, 430
Summary, 435
Review Questions, 436
Problems and Activities, 437
Suggested Projects, 438
14. Investing in Bonds and Other Alternatives, 442
Why Consider Bonds?, 444
Basic Bond Terminology and Features, 444
Types of Bonds, 446
Evaluating Bonds, 451
Preferred Stock—An Alternative to Bonds, 465
Investing in Real Estate, 467
Investing—Speculating—in Gold, Silver, Gems, and Collectibles, 469
Summary, 470
Review Questions, 471
Problems and Activities, 471
Suggested Projects, 472
15. Mutual Funds: An Easy Way to Diversify, 476
Why Invest in Mutual Funds?, 478
Investment Companies, 482
The Costs of Mutual Funds, 484
Types and Objectives of Mutual Funds, 487
Mutual Funds Services, 495
Buying a Mutual Fund, 496
Summary, 505
Review Questions, 506
Problems and Activities, 507
Suggested Projects, 508
Continuing Case: Cory and Tisha Dumont, 512
5. Life Cycle Issues, 514
16. Retirement Planning, 514
Social Security, 516
Employer-Funded Pensions, 519
Plan Now, Retire Later, 521
Employer-Sponsored Retirement Plans, 530
Retirement Plans for the Self-Employed and Small Business Employees, 533
Individual Retirement Arrangements (IRAs), 534
Facing Retirement—The Payout, 540
Putting a Plan Together and Monitoring It, 544
Summary, 546
Review Questions, 546
Problems and Activities, 547
Suggested Projects, 548
17. Estate Planning: Saving Your Heirs Money and Headaches, 552
The Estate Planning Process, 554
Understanding and Avoiding Estate Taxes, 556
Wills, 560
Avoiding Probate, 563
A Last Word on Estate Planning, 571
Summary, 572
Review Questions, 573
Problems and Activities, 574
Suggested Projects, 575
Continuing Case: Cory and Tisha Dumont, 578
18. Fitting the Pieces Together, 580
The Ingredients of Success, 582
The Financial Life Cycle, 582
Women and Personal Finance, 583
Financial Life Events, 584
Making Financial Success Happen, 599
Tying Things Together: Debt and the Real World, 606
Getting Started: Just Do It, 612
Summary, 612
Review Questions, 613
Problems and Activities, 614
Suggested Projects, 614
A. Compound Sum of $1, 618
B. Present Value of $1, 620
C. Compound Sum of an Annuity of $1 for n Periods, 622
D. Present Value of an Annuity of $1 for n Periods, 624
E. Monthly Installment Loan Tables ($1,000 loan with interest payments compounded monthly), 626
Index, I-1-1

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