SIE Exam Question 827: Answer and Explanation

Question: 827

Which of the following are correct regarding exchange-traded funds (ETFs)?

(1) Unlike mutual funds, investors can buy and sell ETFs throughout the trading day.

(2) ETFs can be bought on margin or sold short.

(3) There is never a transaction fee to buy or sell an ETF.

(4) ETFs have low management fees compared to mutual funds.

• A. (3) only
• B. (4) only
• C. (1), (2), and (3) only
• D. (1), (2), and (4) only

Correct Answer: D

Explanation:

Unlike mutual funds, investors can buy and sell exchange-traded funds (ETFs) throughout the trading day. ETFs can be bought on margin or sold short, and they carry low management fees because they require very little active management. There is typically a transaction fee any time an ETF is bought or sold.