Choose wisely. There is only one correct answer to each question.
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1.
Which type of index fund is generally the least tax friendly?
Small-company index fund. Small-cap index funds reap big taxable gains when companies grow too large for the index, forcing the fund to sell those stocks. Large-cap and SP 500 index funds sell stocks when they fall out of the index, meaning they only sell small positions.
2.
Which statement is false?
Index funds are all cheap. Given that index-fund managers aren't actively researching and selecting stocks, all index funds ought to be cheap.
3.
Which statement is true?
Index funds in the large-cap blend category can follow different indexes. Not all index funds are cheap--not even all large-blend index funds. Index funds in the large-blend category can follow different indexes--the most common of which is the SP 500.
4.
Index funds can have high annual expenses.
True. Despite not needing much management, some index funds still charge high annual expenses.
5.
Which of the following types of index funds is typically the least tax efficient?
Small-cap index fund. The small-cap funds eventually have to sell stocks that have grown too large for their indexes, and this creates taxable capital gains.
