Answers: Chapter 15 - Exchange Traded Funds

15.1: Exchange traded funds has the which of the following characteristics

  1. Exchange traded funds represent a diversified group of companies (just like mutual funds) but trade like stocks

  2. Exchange traded funds are just like mutual funds in that their prices are valued once a day

  3. The initial investment in exchange traded funds can be over $1000 just like mutual funds

The correct answer is #1
Answers #2 and #3 are false; ETFs are traded all day (unlike mutual funds, which trade after 4pm) and the initial investment in an ETF can be less than $100.


15.2: True or False. Exchange traded funds are also called index shares.The correct answer is True


15.3: True or False. Most exchange traded funds trading in the market are index based.The correct answer is True


15.4: True or False. Some exchange traded funds are designed to track specific market sectors such as: mining, petroleum, and gaming. The correct answer is True


15.5: Which one of the items below is not an advantage associated with buying exchange traded funds:

  1. They are a good way to hold diversified stocks without having to diversify on your own.

  2. They generally charge lower annual expense ratios than mutual funds.

  3. They have lower capital gains taxes, as the funds generally do not do much trading and therefore capital gains are minimal.

  4. They are only traded once at the end of the day unlike stocks which can be traded all day long

  5. Their initial investment amount can be less than $100, as opposed to an index mutual fund’s investment minimum that's generally around $2,500.

Item #4 is not an advantage.
ETFs have all day trading and tracking.

15.6: Log into MarketWatch and enter the exchange traded fund , SPY, in the search box. SPY is the SPDR S&P 500 exchange traded fund that tracks the S&P 500 index. What is the price of a share of the exchange traded fund?

The price per share of the SPY exchange traded funds as of the day on January 6, 2017 was $226.79 as shown below.