Fundamentals of Financial Management 14th Edition Brigham Test Bank
Fundamentals of Financial Management 14th Edition Brigham Test Bank
Fundamentals of Financial Management 14th Edition Brigham Test Bank
1. A financial intermediary is a corporation that takes funds from investors and then provides those funds to those who
need capital. A bank that takes in demand deposits and then uses that money to make long-term mortgage loans is one
example of a financial intermediary.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: EASY
REFERENCES: 2-1 The Capital Allocation Process
HAS VARIABLES: False
LEARNING OBJECTIVES: FOFM.BRIG.16.02.01 - The Capital Allocation Process
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.16.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.16.02 - Financial markets and interest rates
TOPICS: Financial intermediaries
KEYWORDS: Bloom’s: Knowledge
2. The NYSE is defined as a "spot" market purely and simply because it has a physical location. The NASDAQ, on the
other hand, is not a spot market because it has no one central location.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: EASY
REFERENCES: 2-2 Financial Markets
HAS VARIABLES: False
LEARNING OBJECTIVES: FOFM.BRIG.16.02.02 - Financial Markets
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.16.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.16.02 - Financial markets and interest rates
TOPICS: Financial markets
KEYWORDS: Bloom’s: Knowledge
3. The NYSE is defined as a "primary" market because it is one of the largest and most important stock markets in the
world.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: EASY
REFERENCES: 2-2 Financial Markets
HAS VARIABLES: False
Cengage Learning Testing, Powered by Cognero Page 1
4. Primary markets are large and important, while secondary markets are smaller and less important.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: EASY
REFERENCES: 2-2 Financial Markets
HAS VARIABLES: False
LEARNING OBJECTIVES: FOFM.BRIG.16.02.02 - Financial Markets
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.16.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.16.02 - Financial markets and interest rates
TOPICS: Financial markets
KEYWORDS: Bloom’s: Knowledge
5. Private markets are those like the NYSE, where transactions are handled by members of the organization, while public
markets are those like the NASDAQ, where anyone can make transactions.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: EASY
REFERENCES: 2-2 Financial Markets
HAS VARIABLES: False
LEARNING OBJECTIVES: FOFM.BRIG.16.02.02 - Financial Markets
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.16.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.16.02 - Financial markets and interest rates
TOPICS: Financial markets
KEYWORDS: Bloom’s: Knowledge
6. A share of common stock is not a derivative, but an option to buy the stock is a derivative because the value of the
option is derived from the value of the stock.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: EASY
REFERENCES: 2-2 Financial Markets
HAS VARIABLES: False
7. Financial institutions are more diversified today than they were in the past, when federal laws kept investment banks,
commercial banks, insurance companies, and similar organizations quite separate. Today the larger financial services
corporations offer a variety of services, ranging from checking accounts, to insurance, to underwriting securities, to stock
brokerage.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: EASY
REFERENCES: 2-3 Financial Institutions
HAS VARIABLES: False
LEARNING OBJECTIVES: FOFM.BRIG.16.02.03 - Financial Institutions
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.16.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.16.02 - Financial markets and interest rates
TOPICS: Financial institutions
KEYWORDS: Bloom’s: Knowledge
8. Hedge funds are somewhat similar to mutual funds. The primary differences are that hedge funds are less highly
regulated, have more flexibility regarding what they can buy, and restrict their investors to wealthy, sophisticated
individuals and institutions.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: EASY
REFERENCES: 2-3 Financial Institutions
HAS VARIABLES: False
LEARNING OBJECTIVES: FOFM.BRIG.16.02.03 - Financial Institutions
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.16.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.16.02 - Financial markets and interest rates
TOPICS: Financial institutions
KEYWORDS: Bloom’s: Knowledge
9. Trades on the NYSE are generally completed by having a brokerage firm acting as a "dealer" buy securities and adding
them to its inventory or selling from its inventory. The NASDAQ, on the other hand, operates as an auction market, where
buyers offer to buy, and sellers to sell, and the price is negotiated on the floor of the exchange.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: EASY
REFERENCES: 2-4 The Stock Market
HAS VARIABLES: False
LEARNING OBJECTIVES: FOFM.BRIG.16.02.04 - The Stock Market
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.16.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.16.02 - Financial markets and interest rates
TOPICS: Stock market
KEYWORDS: Bloom’s: Knowledge
10. The "over-the-counter" market received its name years ago because brokerage firms would hold inventories of stocks
and then sell them by literally passing them over the counter to the buyer.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: EASY
REFERENCES: 2-4 The Stock Market
HAS VARIABLES: False
LEARNING OBJECTIVES: FOFM.BRIG.16.02.04 - The Stock Market
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.16.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.16.02 - Financial markets and interest rates
TOPICS: Stock market
KEYWORDS: Bloom’s: Knowledge
11. If you decide to buy 100 shares of Google, you would probably do so by calling your broker and asking him or her to
execute the trade for you. This would be defined as a secondary market transaction, not a primary market transaction.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: EASY
REFERENCES: 2-5 The Market for Common Stock
HAS VARIABLES: False
LEARNING OBJECTIVES: FOFM.BRIG.16.02.05 - The Market for Common Stock
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.16.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.16.02 - Financial markets and interest rates
TOPICS: Stock market transactions
KEYWORDS: Bloom’s: Knowledge
12. The term IPO stands for "individual purchase order," as when an individual (as opposed to an institution) places an
order to buy a stock.
a. True
b. False
ANSWER: False
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CHAPTER 02—FINANCIAL MARKETS AND INSTITUTIONS
POINTS: 1
DIFFICULTY: EASY
REFERENCES: 2-5 The Market for Common Stock
HAS VARIABLES: False
LEARNING OBJECTIVES: FOFM.BRIG.16.02.05 - The Market for Common Stock
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.16.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.16.02 - Financial markets and interest rates
TOPICS: Stock market transactions
KEYWORDS: Bloom’s: Knowledge
13. In a "Dutch auction" for new stock, individual investors place bids for shares directly. Each potential bidder indicates
the price he or she is willing to pay and how many shares he or she will purchase at that price. The highest price that
permits the company to sell all the shares it wants to sell is determined, and this is the "market clearing price." All bidders
who specified this price or higher are allowed to purchase their shares at the market clearing price.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: EASY
REFERENCES: 2-5 The Market for Common Stock
HAS VARIABLES: False
LEARNING OBJECTIVES: FOFM.BRIG.16.02.05 - The Market for Common Stock
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.16.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.16.02 - Financial markets and interest rates
TOPICS: Stock market transactions
KEYWORDS: Bloom’s: Knowledge
14. When a corporation's shares are owned by a few individuals who are associated with the firm's management, we say
that the stock is closely held.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: EASY
REFERENCES: 2-5 The Market for Common Stock
HAS VARIABLES: False
LEARNING OBJECTIVES: FOFM.BRIG.16.02.05 - The Market for Common Stock
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.16.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.16.02 - Financial markets and interest rates
TOPICS: Closely held stock
KEYWORDS: Bloom’s: Knowledge
15. A publicly owned corporation is a company whose shares are held by the investing public, which may include other
corporations as well as institutional investors.
a. True
Cengage Learning Testing, Powered by Cognero Page 5
CHAPTER 02—FINANCIAL MARKETS AND INSTITUTIONS
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: EASY
REFERENCES: 2-5 The Market for Common Stock
HAS VARIABLES: False
LEARNING OBJECTIVES: FOFM.BRIG.16.02.05 - The Market for Common Stock
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.16.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.16.02 - Financial markets and interest rates
TOPICS: Public company
KEYWORDS: Bloom’s: Knowledge
16. If you wanted to know what rate of return stocks have provided in the past, you could examine data on the Dow Jones
Industrial Index, the S&P 500 Index, or the NASDAQ Index.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: EASY
REFERENCES: 2-6 Stock Markets and Returns
HAS VARIABLES: False
LEARNING OBJECTIVES: FOFM.BRIG.16.02.06 - Stock Markets and Returns
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.16.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.16.02 - Financial markets and interest rates
TOPICS: Stock market returns
KEYWORDS: Bloom’s: Knowledge
17. The annual rate of return on any given stock can be found as the stock's dividend for the year plus the change in the
stock's price during the year, divided by its beginning-of-year price.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: EASY
REFERENCES: 2-6 Stock Markets and Returns
HAS VARIABLES: False
LEARNING OBJECTIVES: FOFM.BRIG.16.02.06 - Stock Markets and Returns
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.16.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.16.02 - Financial markets and interest rates
TOPICS: Stock market returns
KEYWORDS: Bloom's: Comprehension
18. The annual rate of return on any given stock can be found as the stock's dividend for the year plus the change in the
stock's price during the year, divided by its beginning-of-year price. If you obtain such data on a large portfolio of stocks,
like those in the S&P 500, find the rate of return on each stock, and then average those returns, this would give you an
Cengage Learning Testing, Powered by Cognero Page 6
CHAPTER 02—FINANCIAL MARKETS AND INSTITUTIONS
idea of stock market returns for the year in question.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: EASY
REFERENCES: 2-6 Stock Markets and Returns
HAS VARIABLES: False
LEARNING OBJECTIVES: FOFM.BRIG.16.02.06 - Stock Markets and Returns
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.16.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.16.02 - Financial markets and interest rates
TOPICS: Stock market returns
KEYWORDS: Bloom's: Comprehension
19. Each stock's rate of return in a given year consists of a dividend yield (which might be zero) plus a capital gains yield
(which could be positive, negative, or zero). Such returns are calculated for all the stocks in the S&P 500. A weighted
average of those returns, using each stock's total market value, is then calculated, and that average return is often used as
an indicator of the "return on the market."
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: EASY
REFERENCES: 2-6 Stock Markets and Returns
HAS VARIABLES: False
LEARNING OBJECTIVES: FOFM.BRIG.16.02.06 - Stock Markets and Returns
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.16.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.16.02 - Financial markets and interest rates
TOPICS: Stock market returns
KEYWORDS: Bloom's: Comprehension
20. Each stock's rate of return in a given year consists of a dividend yield (which might be zero) plus a capital gains yield
(which could be positive, negative, or zero). Such returns are calculated for all the stocks in the S&P 500. A simple
average of those returns (which gives equal weight to each company in the S&P 500) is then calculated. That average is
called "the return on the S&P Index," and it is often used as an indicator of the "return on the market."
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: EASY
REFERENCES: 2-6 Stock Markets and Returns
HAS VARIABLES: False
LEARNING OBJECTIVES: FOFM.BRIG.16.02.06 - Stock Markets and Returns
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.16.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.16.02 - Financial markets and interest rates
Cengage Learning Testing, Powered by Cognero Page 7
CHAPTER 02—FINANCIAL MARKETS AND INSTITUTIONS
21. You recently sold 100 shares of Microsoft stock to your brother at a family reunion. At the reunion your brother gave
you a check for the stock and you gave your brother the stock certificates. Which of the following best describes this
transaction?
a. This is an example of a direct transfer of capital.
b. This is an example of a primary market transaction.
c. This is an example of an exchange of physical assets.
d. This is an example of a money market transaction.
e. This is an example of a derivative market transaction.
ANSWER: a
POINTS: 1
DIFFICULTY: EASY
REFERENCES: 2-1 The Capital Allocation Process
HAS VARIABLES: False
LEARNING OBJECTIVES: FOFM.BRIG.16.02.01 - The Capital Allocation Process
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.16.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.16.02 - Financial markets and interest rates
TOPICS: Capital allocation
KEYWORDS: Bloom's: Comprehension
OTHER: Multiple Choice: Conceptual
d. Long-term bonds.
e. Short-term debt securities such as Treasury bills and commercial paper.
ANSWER: e
POINTS: 1
DIFFICULTY: EASY
REFERENCES: 2-2 Financial Markets
HAS VARIABLES: False
LEARNING OBJECTIVES: FOFM.BRIG.16.02.02 - Financial Markets
NATIONAL STANDARDS: United States - BUSPROG.FOFM.BRIG.16.06 - Reflective thinking
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.16.02 - Financial markets and interest rates
TOPICS: Money markets
KEYWORDS: Bloom’s: Knowledge
OTHER: Multiple Choice: Conceptual
27. You recently sold 200 shares of Disney stock, and the transfer was made through a broker. This is an example of:
a. A money market transaction.
b. A primary market transaction.
c. A secondary market transaction.
d. A futures market transaction.
e. An over-the-counter market transaction.
ANSWER: c
POINTS: 1
DIFFICULTY: EASY
STATE STANDARDS: United States - OH - DISC.FOFM.BRIG.16.02 - Financial markets and interest rates
TOPICS: Financial markets and institutions
KEYWORDS: Bloom’s: Knowledge
OTHER: Multiple Choice: Conceptual
TOPICS: IPOs
KEYWORDS: Bloom’s: Knowledge
OTHER: Multiple Choice: Conceptual