Funds Beginner: Exchange-Traded Funds

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1.
In what form do investors buy or redeem shares from an exchange-traded fund?
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In blocks of a certain number. The blocks are typically in groups of 50,000 shares.
2.
Exchange-traded funds are a type of mutual fund.
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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.
3.
If you are an active, frequent trader of exchange-traded funds, then your trading expenses will probably _______ those of mutual funds.
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Exceed. Those who trade frequently will probably discover this. So if you plan to trade ETFs frequently, you should take note.
4.
Which statement is true about exchange-traded funds (ETFs)?
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The arbitrage mechanism that keeps ETFs' prices in line with their NAVs should work most of the time. Differences between an ETF's price and its NAV can occur with those ETFs that aren't traded very often. Also, it's unclear how well the arbitrage mechanism will work during a full-fledged market correction.
5.
Compared to mutual funds, exchange-traded funds are ______ to make capital-gains distributions.
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Less likely. However, at times they must, in order to adjust for changes to their underlying indexes.