Which investment is designed to track a broad market index and trades on an exchange?

Which investment is designed to track a broad market index and trades on an exchange?

• A. ETF
• B. Index Fund
• C. Mutual Fund
• D. Stock

Answer: (A)

An exchange-traded fund is designed to mimic a broad market index by holding a basket of securities that match the index, and it trades on an exchange like a stock, so you can buy or sell shares throughout the trading day at market prices. This combination—index tracking with intraday trading—is what makes ETFs fit this description. An index fund or mutual fund also aims to track an index but isn’t traded on an exchange; you buy or sell at the fund’s net asset value at the end of the day. A single stock represents ownership in one company, not a diversified basket that tracks a broad market index.

An exchange-traded fund is designed to mimic a broad market index by holding a basket of securities that match the index, and it trades on an exchange like a stock, so you can buy or sell shares throughout the trading day at market prices. This combination—index tracking with intraday trading—is what makes ETFs fit this description. An index fund or mutual fund also aims to track an index but isn’t traded on an exchange; you buy or sell at the fund’s net asset value at the end of the day. A single stock represents ownership in one company, not a diversified basket that tracks a broad market index.