CFA Practice Question

There are 275 practice questions for this study session.

CFA Practice Question

Which of the following is the LEAST ACCURATE with respect to exchange-traded funds (ETFs)?

A. The in-kind redemption feature of an ETF implies that when an investor sells her shares, a potential tax liability will not arise for the remaining shareholders.
B. It is very common for ETF prices to deviate away from their respective net asset value per share.
C. ETFs are essentially shares representing ownership in a portfolio.
D. Unlike traditional open-ended mutual funds, ETFs do not require any accounting at the shareholder level.
Correct Answer: B

It is very uncommon for ETF prices to deviate away from their respective net asset value per share. There are specialists who make a market in these securities. However, in doing so, they ensure that the ETF price is very close to that of its underlying portfolio.

User Contributed Comments 2

User Comment
tichas Study on ETF,S in depth
khalifa92 textbook
"known as authorized participants (APs), has the option of trading directly with the ETF. if the market price of an equity ETF is sufficiently below its net asset value, APs will buy shares in the secondary market at the market price and redeem shares at net asset value with the fund."
You need to log in first to add your comment.