Final answer:
The estimated amount a long-lived asset is expected to be sold for at the end of its useful life is the residual value. This concept applies to both tangible assets like collectibles and financial assets such as bank loans. The secondary loan market determines the current value of these financial assets.
Step-by-step explanation:
The estimated amount a long-lived asset is expected to be sold for at the end of its useful life is the residual value.
When considering tangible assets like collectibles, such as paintings, fine wine, jewelry, antiques, or baseball cards, they can provide returns through their service or their potentially higher selling price in the future. However, the market for these items can be volatile, and while they may experience spikes in value, they are not typically expected to yield a consistently higher-than-average return over an extended period.
Similarly, loans are a type of asset for banks, such as a 30-year mortgage loan that the bank issues to a borrower for purchasing a house. The current value of this asset to the bank is estimated based on what another party is willing to pay for it in the market. Loans are originated in the primary loan market and can be sold or purchased in the secondary loan market, where their market value can fluctuate based on demand.