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ETFs 105: Exchange-Traded Funds and Fixed Income

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1.
Individual bonds trade on the exchange like ETFs?
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False. Bonds are traded on the over-the-counter market.
2.
Fixed income is more actively traded than stocks?
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False. Stocks are traded much more frequently than bonds.
3.
Low fees are less important in bond ETFs than in comparable mutual funds.
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False. Since bonds are traditionally a low-return investment, the minimization of fees is more important.
4.
Why do bond ETFs trade at premiums or discounts to net asset value?
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The lower liquidity of the bond market makes it difficult keep the price exactly at the ETF's net asset value. The bond market's reduced liquidity makes it difficult for arbitragers to keep the ETF price exactly on the net asset value.
5.
Which exchange-traded fund is exposed to more risk?
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An emerging-markets-bond ETF that hold 10-15 years to maturity. Emerging-markets bonds are one of the most volatile asset classes, and long-maturity bonds carry the most interest-rate risk.