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1.
A big premium on an exchange-traded note is a good sign.
False. A big premium usually indicates that the market is uncomfortable about the health of the issuing company.
2.
Investors can protect themselves from the credit risk of owning an exchange-traded note by using stop-loss orders.
False. Using a stop-loss order would address market risk, not credit risk. To address credit risk, investors should monitor the financial situation of the issuing bank.
3.
When it comes to earning money on them, exchange-traded notes promise investors _______.
The return on a given index minus fees. ETNs follow a given index and promise returns based on that. They do not guarantee that return, however.
4.
Distributions from exchange-traded notes are taxed at _______.
Ordinary income rates. Distributions, though rare, are taxed at ordinary income rates.
5.
How can investors protect themselves from the credit risk inherent in owning an exchange-traded note?
By monitoring the financial situation of the issuing bank, and selling out if warning signs appear. The other three options are ways to mitigate the market risk of the investment, not the credit risk.
