Final answer:
The true statement about Market Index Linked CDs is that their rate of return may be capped to a limit lower than the return of the reference stock index. These CDs offer a mix of risk and return, providing a minimum guaranteed return with a potential for higher gains, although the gains are subject to a cap.
Step-by-step explanation:
The statement about Market Index Linked CDs that is true is: The rate of return may be capped to a limit that is lower than the return of the reference stock index. Market Index Linked CDs are unique financial products that offer investors returns tied to a market index, such as the S&P 500, but with a capped maximum return. Despite the potential for higher returns than traditional CDs, the cap means that investors may not realize the full returns that the market index achieves.
These CDs are designed to give a safety net in the form of a guaranteed minimum return, which is typically higher than that of savings accounts. However, this safety comes at the cost of potential returns. Additionally, it's important to note that Market Index Linked CDs typically incur penalties for early redemption, and their terms can include specific redemption dates, usually set on a quarterly basis. The minimum life of such CDs can vary, and while it's not uncommon to see terms of three years or more, it is not a universally true statement.