An ETF share trades at a premium when its market price is:
Alower than the value of its underlying holdings
Bequal to the value of its underlying holdings
Chigher than the value of its underlying holdings
Dset once a year by the fund's investment adviser
Answer & Solution
Correct answer: C. higher than the value of its underlying holdings
1. An ETF has two values at once: the market price its shares trade at, and the value of its underlying holdings.
2. A premium means the market price sits above the value of those underlying holdings.
3. A market price below that value is a discount, which is the mirror case.
4. A history of end-of-day premiums and discounts is usually published on the website of the ETF or its sponsor.
_Source: US SEC Office of Investor Education and Advocacy, "Mutual Funds and ETFs: A Guide for Investors", section How ETFs Work_
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