Which type of bond allows for periodic changes in the interest rate?

Reset bonds are designed with interest rates that can be adjusted at predetermined intervals, allowing the issuer or investor to benefit from changes in prevailing market rates. This periodic adjustment typically occurs according to a specified formula or index, which means that as market conditions fluctuate, the interest payments on reset bonds can either increase or decrease accordingly.

This characteristic differentiates reset bonds from fixed-rate bonds, where the interest rate remains constant throughout the lifespan of the bond. Similarly, coupon bonds generally refer to bonds that pay a fixed interest amount (coupon) periodically, which does not incorporate interest rate adjustments. Zero coupon bonds, on the other hand, do not pay periodic interest at all; instead, they are issued at a discount and mature at their face value.