Are You Street Smart?
Most people spend a small fortune on a college education for book smarts - but when you get in the real world, you must also have street smarts!
- 1.
What is interest?
- A.
Interest is money that is easy to understand
- B.
Interest is "rent on money"
- C.
It means you are interested in money
Correct Answer
B. Interest is "rent on money"Explanation
Interest is simply "rent on money" that you borrow. You pay a price to use someone elses money.Rate this question:
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- 2.
What is simple interest?
- A.
Interest that is simple to understand
- B.
An interest rate that is a % of the principal borrowed and does not compound
- C.
Compound interest that is simplified by a calculator
- D.
A zero percent interest rate
Correct Answer
B. An interest rate that is a % of the principal borrowed and does not compoundExplanation
Simple interest is a % of the principal borrowed and does not compoundRate this question:
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- 3.
What is compound interest?
- A.
An interest rate that compounds and complicates your life
- B.
An interest rate mothod that pays interest upon interest
- C.
A compound rate that is paid back early
- D.
A complicated problem in finance
Correct Answer
B. An interest rate mothod that pays interest upon interestExplanation
Compound interest is "interest upon interest"Rate this question:
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- 4.
Which type of interest, over a period of time, will pay you more?
- A.
Compound
- B.
Simple
Correct Answer
A. CompoundExplanation
Compound interest can make you very wealthy over a long period of time because it pays "interest upon interest"Rate this question:
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- 5.
Who said "Compound interest is the greatest invention of the 20th century?"
- A.
Richard Nixon
- B.
John F. Kennedy
- C.
Albert Einstein
- D.
Alan Greenspan
Correct Answer
C. Albert EinsteinExplanation
Albert Einstein is attributed to saying "Compound interest is the greatest invention of the 20th century." This statement reflects Einstein's recognition of the power and impact of compound interest, which allows for exponential growth of investments over time. Einstein's endorsement of compound interest highlights its significance in the field of finance and its potential for wealth accumulation.Rate this question:
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- 6.
What is the greatest influencer on interest rates?
- A.
Time value of money
- B.
Risk
- C.
Time preference for consumption
- D.
Greedy corporate lawyers
Correct Answer
B. RiskExplanation
Generally risk is the greatest influencer on the interest rate - the higher the risk, the higher the interest rateRate this question:
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- 7.
Most credit card companies charge which type of interest rate?
- A.
Simple
- B.
Compound
- C.
Mixed
- D.
No interest rate
Correct Answer
B. CompoundExplanation
Most credit card companies charge compound interestRate this question:
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- 8.
The field of economics is the study of:
- A.
Money
- B.
Resources
- C.
Interest rates
- D.
The science of making choices with limited resources
Correct Answer
D. The science of making choices with limited resourcesExplanation
Economics is the study of making choices with resourcesRate this question:
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- 9.
Unlimited wants and limited resources is known as the:
- A.
Economizing problem
- B.
Dismal science
- C.
Personal issues with money
- D.
Whining people who want something for nothing
Correct Answer
A. Economizing problemExplanation
The economizing problem is "we as humans have unlimited wants and limited resources" so we have to make choicesRate this question:
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- 10.
The "tool from the school" of economics used to make the best choices is called:
- A.
My best guess
- B.
Flip a coin
- C.
Marginal analysis
- D.
Wing it, ready aim fire
Correct Answer
C. Marginal analysisExplanation
The tool from the school of economics to make the best choices is "marginal analysis" and means "extra" or "incremental"Rate this question:
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- 11.
The underlying reasoning behind marginal analysis is:
- A.
Is the marginal benefit greated than the marginal cost?
- B.
Is the marginal input of labor greater than the marginal cost?
- C.
Is the marginal revenue from producing an extra unit greated than the marginal cost to produce that extra unit?
- D.
All the above
Correct Answer
D. All the aboveExplanation
All are examples of using marginal analysisRate this question:
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- 12.
If an additonal salesperson cost $30,000 a year to hire, but will bring in an additional $50,000 in sales, what is the marginal cost of hiring the new salesperson?
- A.
$30,000
- B.
$50,000
- C.
$20,000
- D.
$80,000
Correct Answer
A. $30,000Explanation
The marginal cost is $30,000Rate this question:
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- 13.
From the above, what is the marginal revenue?
- A.
$30,000
- B.
$80,000
- C.
$50,000
- D.
$20,000
Correct Answer
D. $20,000Explanation
The marginal revenue is $20,000, since you added $30,000 in cost, the "extra revenue" above cost is $20,000.Rate this question:
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- 14.
If the marginal cost of adding x unit is $1000, and the marginal PROFIT is $1200, should you add the marginal cost?
- A.
Yes
- B.
No
- C.
I don't know
Correct Answer
A. YesExplanation
Yes because the marginal profit of $200 is greater than the marginal costRate this question:
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- 15.
Nothing in life is free - NOTHING. What is the definition of "opportunity cost?"
- A.
The cost of opportunities in life
- B.
The cost of the "next best alternative I would do with my time or money"
- C.
The high cost of opportunistic living
Correct Answer
B. The cost of the "next best alternative I would do with my time or money"Explanation
Opportunity cost is the cost of the "next best opportunity I would do with my time or money"Rate this question:
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- 16.
Which is more valuable: a dollar now or in the future, or in between?
- A.
A dollar now
- B.
A dollar in the future
- C.
A dollar right between the current date and the specific future date
Correct Answer
A. A dollar nowExplanation
A dollar now is worth more than a dollar in the future. This is because a dollar in the future has less purchasing power, due to inflation, risk, and other factors.Rate this question:
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- 17.
If you borrow $1000 at a 10% simple interest rate, how much will you pay back if it is due in one year?
- A.
$1010
- B.
$1050
- C.
$1100
- D.
$1155
Correct Answer
C. $1100Explanation
$1000 x 10% = $100. Add $100 to the $1000 and you get $1100.Rate this question:
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- 18.
What does "the present value of future cash flows" mean?
- A.
Money in the future is worth more
- B.
Money expected in the future, discounted at a % interest rate that equates it to present value, or "in today's dollars"
- C.
A Christmas present that is valued at high interest
- D.
Money in the present with interest added to get a future value
Correct Answer
B. Money expected in the future, discounted at a % interest rate that equates it to present value, or "in today's dollars"Explanation
It is simply taking future cash flows and "discounting them" at a certain percentage rate to convert them to today's dollars. Vary important tool in finance.Rate this question:
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- 19.
What does it mean to own "stock" in a corporation?
- A.
It means to own part of a livestock stockyard
- B.
It means you are part owner of a company by purchasing stock of the company
- C.
It means you loan money to the company, but are not an "owner"
- D.
It's just like a bond - you lend money and expect it to be paid back
Correct Answer
B. It means you are part owner of a company by purchasing stock of the companyExplanation
It means you are part owner of the company by purchasing some of it's stock...Rate this question:
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- 20.
What is a "bond"
- A.
It's lending money to a company and expecting it to be paid back in full to you, plus the "coupon rate" (the stated interest rate)
- B.
It's a railroad term
- C.
It's a type of glue
- D.
It's a mix between ownership equity and a debt instrument
Correct Answer
A. It's lending money to a company and expecting it to be paid back in full to you, plus the "coupon rate" (the stated interest rate)Explanation
When you purchase bonds you are "loaning money" to a company but are not an "owner" of the firm, which is different than stockRate this question:
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Current Version
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May 09, 2023Quiz Edited by
ProProfs Editorial Team -
Nov 07, 2009Quiz Created by
Streetsmart
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