What type of security promises a fixed rate of interest or dividends?

The type of security that promises a fixed rate of interest or dividends is known as a fixed-income security. This category of securities typically includes instruments such as bonds and other debt instruments where the issuer agrees to pay a specified amount of interest at regular intervals and return the principal at maturity. The predictability of returns makes fixed-income securities appealing to investors who seek steady income and lower risk compared to equities or other more volatile investments.

In contrast, equity securities represent ownership in a company and can vary in terms of dividends, as they are not guaranteed and depend on the company's performance. Derivative securities are financial contracts whose value is derived from the performance of an underlying asset, such as stocks or commodities, and do not offer fixed returns. Preference shares, while they may offer fixed dividends, do not typically fall under the strict definition of fixed-income securities, as their payment is contingent on the company’s board of directors’ decisions and the company’s financial situation.