# Are You Street Smart?

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| By Streetsmart
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Streetsmart
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Quizzes Created: 2 | Total Attempts: 1,596
Questions: 20 | Attempts: 1,198

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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!

Questions and Answers
• 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.

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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 compound
Explanation
Simple interest is a % of the principal borrowed and does not compound

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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 interest
Explanation
Compound interest is "interest upon interest"

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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. Compound
Explanation
Compound interest can make you very wealthy over a long period of time because it pays "interest upon interest"

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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 Einstein
Explanation
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.

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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. Risk
Explanation
Generally risk is the greatest influencer on the interest rate - the higher the risk, the higher the interest rate

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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. Compound
Explanation
Most credit card companies charge compound interest

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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 resources
Explanation
Economics is the study of making choices with resources

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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 problem
Explanation
The economizing problem is "we as humans have unlimited wants and limited resources" so we have to make choices

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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 analysis
Explanation
The tool from the school of economics to make the best choices is "marginal analysis" and means "extra" or "incremental"

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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 above
Explanation
All are examples of using marginal analysis

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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. \$30,000
Explanation
The marginal cost is \$30,000

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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. \$20,000
Explanation
The marginal revenue is \$20,000, since you added \$30,000 in cost, the "extra revenue" above cost is \$20,000.

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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. Yes
Explanation
Yes because the marginal profit of \$200 is greater than the marginal cost

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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"

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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 now
Explanation
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.

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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. \$1100
Explanation
\$1000 x 10% = \$100. Add \$100 to the \$1000 and you get \$1100.

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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.

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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 company
Explanation
It means you are part owner of the company by purchasing some of it's stock...

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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 stock

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• Current Version
• May 09, 2023
Quiz Edited by
ProProfs Editorial Team
• Nov 07, 2009
Quiz Created by
Streetsmart

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