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1.
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.
2.
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.
3.
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.
4.
In general, exchange-traded funds are cheaper to buy than index mutual funds if you want to trade regularly.
False. Because of their commissions, regular trading will likely cost you more with exchange-traded funds.
5.
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.
