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ETFs 108: Using Exchange-Traded Funds Opportunistically

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1.
To determine whether an exchange-traded fund is over- or undervalued, analysts compare their fair value estimate for the fund with the fund's current market price.
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True. Analysts must compare market prices with each other.
2.
To determine whether an exchange-traded fund is over- or undervalued, analysts compare their fair value estimate for the fund with other fair value estimates.
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False. Analysts compare their fair value estimate for the fund with the fund's current market price.
3.
Sally decided to shift her portfolio into diversified ETFs because her performance suffered from her single stock selections. The type of risk that Sally is looking to mitigate in her investment portfolio can be referred to as firm-specific, or _______ risk.
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Idiosyncratic. This can also be referred to as "nonsystematic risk," which is defined as risk that is unique to a certain asset or company. An example of nonsystematic risk is the possibility of poor earnings a strike amongst a company's employees.
4.
To determine whether an exchange-traded fund is over- or undervalued, analysts compare their own fair value estimate for the fund with _______.
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The fund's current market price. Analysts must compare prices with each other.
5.
All of the following characteristics exemplify why ETFs are excellent tools for opportunistic investing EXCEPT ________.
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High investment minimums. ETFs do not have investment minimums; investors can buy as little as one share at a time.
DONE