Which statement about ETNs is true?

• A. They are equity mutual funds registered under the Investment Company Act
• B. They are debt instruments promising returns based on a debt index after fees
• C. They are insured bank products
• D. They pay fixed coupons regardless of index performance

Answer: (B)

ETNs are unsecured debt obligations issued by a bank. They promise to pay the investor the return of a specified index, net of fees, rather than a fixed interest rate. This means the payoff depends on how the chosen index performs and you’re exposed to the issuer’s credit risk, not insured by the FDIC. They’re not equity mutual funds registered under the Investment Company Act, and they don’t carry fixed coupons like a traditional bond. They generally pay returns tied to the index’s performance after fees, not a guaranteed fixed amount.