Which of the following characteristics apply to exchange traded funds (ETFs)?
I. unlimited number of outstanding shares
II. typically track the performance of some index
III. Market prices may be higher or lower than NAV.
IV. May invest in the whole index or use a sample of securities to track the index as closely as possible.

Question

Quizplus · Accepted Answer

ETFs have an unlimited number of outstanding shares (I), typically track the performance of some index (II), and may invest in the whole index or use a sample of securities to track the index as closely as possible (IV). They also trade like stocks, and therefore their market price may be higher or lower than their net asset value (NAV) (III). Therefore, all four characteristics apply to ETFs, and the correct answer is D.

Which of the Following Characteristics Apply to Exchange Traded Funds