Final answer:
A bond with a fixed periodic payment schedule is a fixed-rate bond. It involves regular coupon payments based on the interest rate at issuance. Though fixed-rate bonds offer predictable returns, they carry risk if market interest rates rise.
Step-by-step explanation:
The bond that is characterized by a fixed periodic payment schedule is known as a fixed-rate bond. These payments, often referred to as coupon payments, are made to bondholders at regular intervals based on an established interest rate until the bond's maturity. Issuing entities of bonds include firms (corporate bonds), cities (municipal bonds), U.S. states (state bonds), and the federal government (Treasury bonds).
Bonds are a form of financial contract in which the borrower promises to repay the borrowed amount plus interest over time. Each bond has its own details, such as the principal amount, the repayment schedule, and the interest rate at issuance. Despite the fixed interest rate, bonds carry a level of risk. For example, if market interest rates increase, the value of existing bonds with lower interest rates may decrease, causing a loss to investors who own such bonds.
Some bonds, known as high-yield or junk bonds, offer higher returns but also present a higher risk of default. The bond yield represents the expected rate of return on a bond at the time of purchase, giving investors an idea of the income they can expect from their investment.