Correct answer: (a) 1 and 2 only
Explanation
- A
1 and 2 only
1 and 2 only. IIBs let the sovereign pay a lower real coupon; they protect investors from inflation uncertainty. Interest and capital gains are not tax-free.
- B
2 and 3 only
2 and 3 only. Statement 3 is false.
- C
1 and 3 only
1 and 3 only. Tax exemption is the miss.
- D
1, 2 and 3
All three. IIB cash-flows are taxable in the ordinary way.
Summary. Official key is (a) 1 and 2 only. Inflation-indexed bonds shift inflation risk to the issuer, so the coupon can be lower in real terms, and the holder is protected against inflation surprises. They are not a tax-free instrument.
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