Choose wisely. There is only one correct answer to each question.
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1.
All of the following characteristics exemplify why ETFs are excellent tools for opportunistic investing EXCEPT ________.
High investment minimums. ETFs do not have investment minimums; investors can buy as little as one share at a time.
2.
To determine whether an exchange-traded fund is over- or undervalued, analysts compare their fair value estimate for the fund with the fund's current market price.
True. Analysts must compare market prices with each other.
3.
Which of the following would NOT be considered an opportunistic investment in exchange-traded funds?
Because he lacks any conviction, Henry decided to park his money in a total market ETF. Henry has made the conscious decision to simply take on market beta, as he doesn't have any opinions or the conviction to make an opportunistic investment. All of the other choices describe opportunistic investments, as they attempt to take advantage of short-term dislocations between the market price and what they perceive to be an appropriate long-term fair value.
4.
To determine whether an exchange-traded fund is over- or undervalued, analysts compare their own fair value estimate for the fund with _______.
The fund's current market price. Analysts must compare prices with each other.
5.
To determine whether an exchange-traded fund is over- or undervalued, analysts compare their fair value estimate for the fund with other fair value estimates.
False. Analysts compare their fair value estimate for the fund with the fund's current market price.
