What defines fixed income instruments?

Fixed income instruments are characterized by their guarantee of fixed interest income over a specified term. This means that when an investor purchases a fixed income security, such as a bond, they typically receive regular interest payments at a predetermined rate, along with the return of the principal (the original investment) at maturity. This predictability of cash flows is a key feature that appeals to many investors, particularly those seeking stable income and lower risk compared to equities.

In contrast, variable interest payments, such as those associated with floating-rate bonds or certain loans, do not fall under the category of fixed income instruments, making the first option incorrect. The characterization of fixed income instruments as primarily equity-based securities is also misleading, as fixed income securities generally represent debt rather than ownership interest in a company. Finally, while government-issued bonds are indeed a type of fixed income instrument, the category also includes corporate bonds, municipal bonds, and other types of debt vehicles. Therefore, it's incorrect to limit fixed income instruments solely to government-issued bonds.