Choose wisely. There is only one correct answer to each question.
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1.
An advantage of ETFs over mutual funds is that they have lower overhead charges.
True. An advantage of ETFs over mutual funds is that they don't have to manage hundreds of customer accounts or staff call centers, so they have lower overhead charges that translate into lower expense ratios.
2.
Which of the following is better structured to shield investors from capital gains?
ETFs. ETFs are better able to shield investors from capital gains, due to the 'in-kind' nature of trading.
3.
An ETF may be the most cost-effective choice over mutual funds for investors who _______.
All of the above. Otherwise, a mutual fund may be more cost effective.
4.
A potential disadvantage to the exchange-traded aspect of an ETF is _______.
All of the above. Market prices of an ETF can deviate from the underlying net asset value. ETFs are bought and sold likes stocks, so bid ask spread costs and commissions costs can be incurred.
5.
When paying a trading commission on each trade, what sort of investment strategy is better used with mutual funds than ETFs?
Dollar cost averaging or reinvestment plans. Because they involve many smaller transactions, each potentially incurring transactions cost, dollar cost averaging or reinvestment plans are generally better implemented with mutual funds.
