SIE practice questioneasyETFs — Overview
An Exchange-Traded Fund (ETF) shares characteristics of both mutual funds and stocks because it:
- AIs priced once daily like a mutual fund and cannot be traded during the day
- BHolds a diversified portfolio like a mutual fund but trades on exchanges throughout the day like a stock✓ Correct answer
- CCan only be purchased directly from the fund company
- DGuarantees a fixed return like a bond
Explanation
Why B — Holds a diversified portfolio like a mutual fund but trades on exchanges throughout the day like a stock
ETFs combine mutual fund features (diversified portfolio, professional management) with stock features (intraday trading on exchanges, ability to short sell, use limit orders, and buy on margin). Unlike mutual funds, which are priced once daily at NAV, ETFs have continuously fluctuating market prices throughout the trading day.
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