Which of the following best describes the cash flow generated by bonds?

The cash flow generated by bonds is best characterized as stable due to the fixed interest payments they provide over time. When an investor purchases a bond, they are essentially lending money to the issuer (such as a corporation or government) in exchange for regular interest payments, known as coupon payments. These payments are predetermined and are typically made at set intervals, which ensures that investors receive a reliable and consistent stream of income.

This stability is a key advantage of bonds as an investment vehicle, as it contrasts sharply with the unpredictability of returns associated with stocks, where dividends are not guaranteed and can be influenced by a multitude of factors including market conditions and company performance. In the case of bonds, the fixed interest nature allows investors to plan their cash flow with more certainty, making bonds an attractive option for those seeking lower-risk investment opportunities.