Which statements describe the investment risks of a Tracker Bond? (i) lack of access to funds during the term; (ii) return less than the rate of inflation; (iii) unlimited losses if the index falls.

• A. (ii) only.
• B. (iii) only.
• C. (i) and (ii) only.
• D. (i), (ii) and (iii).

Answer: (C)

Tracker bonds expose you to the index rather than a fixed cash return, and they often have a fixed term with limited liquidity. This means you may not be able to access your money before maturity, which is a real risk if you need funds early. If the index performs poorly, the payoff may be lower than inflation, so returns can lag behind inflation over the term. However, the idea of unlimited losses does not fit a standard tracker bond, because, without leverage, you typically cannot lose more than your initial investment—the payoff is tied to the index but does not create unlimited downside. So the statements about lack of access to funds and inflation underperformance describe true risks, while unlimited losses does not.