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1.
When can you buy exchange-traded funds?
Anytime during the trading day. As opposed to mutual funds, which are sold at the end of the day no matter when during the day you place your order, you can buy exchange-traded funds at any time during the day.
2.
Exchange-traded funds are always cheaper to buy than mutual funds.
False. If you trade frequently, ETFs will likely be more expensive than mutual funds, due to the commissions.
3.
Which statement is true about exchange-traded funds (ETFs)?
The arbitrage mechanism that keeps ETFs' prices in line with their NAVs should work most of the time. Differences between an ETF's price and its NAV can occur with those ETFs that aren't traded very often. Also, it's unclear how well the arbitrage mechanism will work during a full-fledged market correction.
4.
Exchange-traded funds are a type of mutual fund.
False. Exchange-traded funds are not mutual funds; they are baskets of securities that are traded on an exchange. They are actually part mutual fund, part stock.
5.
In what form do investors buy or redeem shares from an exchange-traded fund?
In blocks of a certain number. The blocks are typically in groups of 50,000 shares.
