Final answer:
A bank could be the entity that buys accounts receivable at a discounted price, known as factoring. The price at which loans are bought in the secondary market is influenced by the riskiness of the loan and current versus past interest rates. Loans to riskier borrowers or those with lower rates relative to current rates are bought at a lower price, while loans to profitable firms or those with higher rates are more valuable.
Step-by-step explanation:
The entity that buys accounts receivable before they are due at a discounted price is usually a factor or a factoring company. This process of selling receivables is known as factoring, which provides the entity with compensation for both the time value of money and for the expected level of defaults amongst the accounts receivable. Of the options provided, a bank could potentially be involved in this activity, as banks provide a variety of financial services, including factoring.
Financial institutions consider various factors when buying loans in the secondary market. Riskiness of the loan and the current interest rates compared to those at the time of the loan's issuance are critical in deciding the purchase price. A loan from a borrower who has been late on payments is considered riskier, hence less valuable. Conversely, a loan to a company with high reported profits is seen as more secure, and the loan would command a higher price in the secondary market. Similarly, loans are more valuable if they were made at higher interest rates than the prevailing rates. This is because they represent an opportunity to earn higher returns than those currently available.