Choose wisely. There is only one correct answer to each question.
0%
Keep studying!
Review your answers below to learn more.
1.
What are exchange-traded funds?
Baskets of securities that are traded on an exchange. ETFs are part mutual fund, part stock.
2.
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.
3.
Because their shares are sold to other investors rather than redeemed, exchange-traded funds do not need to buy and sell stocks.
False. ETFs do at times need to buy and sell stocks, but it is in order to adjust for changes to their underlying indexes.
4.
The price of an exchange-traded fund on the market is _______.
Either the net asset value or a price higher or lower than that. Exchange-traded funds do not necessarily trade at the net asset values of their underlying holdings; they are sometimes higher or lower, based on demand and other factors.
5.
Which statement is false about exchange-traded funds?
ETFs are always the cheaper choice for all investors. Although the annual expenses of ETFs are below those of mutual funds, you must pay a commission each time you buy an ETF. As a result, ETFs may not be cheaper choices for investors who invest a little bit at a time, or those who trade actively.
