Question

Which of the following statements is TRUE concerning exchange-traded funds (ETFs)?

A. The securities may be used by individuals to pursue a market timing strategy
B. The purchase price is based on a net asset value, plus any applicable sales charges
C. The securities are priced once a day based on the close of trading
D. Transactions in these securities must be executed in a cash account

Answer 1

The correct statement about exchange-traded funds (ETFs) is that they can be used by individuals to pursue a market timing strategy as they trade like stocks, offering intraday liquidity.

Step-by-step explanation:

Among the statements concerning exchange-traded funds (ETFs), the true statement is A. The securities may be used by individuals to pursue a market timing strategy. ETFs are similar to mutual funds in that they both hold diversified portfolios; however, ETFs trade on an exchange just like stocks. This allows investors to buy and sell them throughout the trading day at market prices, which enables market timing strategies.

Unlike mutual funds priced once a day, ETFs do not have a net asset value calculated at the end of the day with additional sales charges (as stated in B), and they are not solely priced at the close of trading (C). Investors can also use margin accounts for trading ETFs, making option D incorrect. The ability of ETFs to be traded throughout the day adds to their liquidity, offering flexibility and accessibility to investors much like stocks, with the diversification benefits of mutual funds.