mouse123

Closed-end funds and exchange traded funds (ETFs) have which of the following characteristics in common?

A) Both closed-end funds and ETFs stand ready to redeem shares.

B) The structures of closed-end funds and ETFs prevent shares from trading at a significant premium or discount to NAV.

C) Shares of both closed-end funds and ETFs trade in the secondary market.

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Only ETFs stand ready to redeem shares; investors in closed-end funds can only divest through trading in the secondary market. The in-kind redemption process prevents ETFs from trading at significant premiums or discounts. There are no barriers in the structure of closed-end funds to prevent share prices deviating from NAV. Shares of both closed-end funds and ETFs do trade in the secondary market.

mouse123

Which of the following statements about exchange-traded funds (ETFs) and closed-end funds is least accurate?

A) ETFs can only trade in the secondary market, while closed-end funds can be redeemed in cash by the manager of the underlying index.

B) ETFs attempt to track the performance of a stock index, but closed-end funds usually do not.

C) Because of arbitrage, shares of an ETF rarely trade at a premium or discount to NAV as shares of a closed-end fund often do.

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While both ETFs and closed-end funds trade on stock exchanges, only ETFs can be redeemed in cash. The remaining statements are true.