Question

Your customer is interested in a leveraged fund and makes the following statements about leveraged funds to you. All of the statements regarding leveraged funds are true EXCEPT

A)there are no unusual risks associated with these funds other than those one would incur with any index tracking fund
B)these funds sometimes use derivatives products to achieve their stated goals
C)the funds attempt to return a multiple of the return of a benchmark index they are tracking, perhaps 2 or 3 times
D)some leveraged funds are exchange-traded products

Answer 1

Leveraged funds attempt to return a multiple of the return of a benchmark index they are tracking, and sometimes use derivatives products. The statement that is not true about leveraged funds is that there are no unusual risks associated with these funds.

Step-by-step explanation:

Leveraged funds are a type of fund that attempt to return a multiple of the return of a benchmark index they are tracking, usually 2 or 3 times. These funds sometimes use derivatives products to achieve their stated goals. Some leveraged funds are also exchange-traded products.

Therefore, the statement that is NOT true about leveraged funds is: (A) there are no unusual risks associated with these funds other than those one would incur with any index tracking fund.