Final answer:
Assets on a balance sheet are usually reported at cost. The money listed under assets may not be in the bank due to the asset-liability time mismatch. When buying loans in the secondary market, the price you're willing to pay varies with the borrower's payment history, the change in economy-wide interest rates, and the borrower's financial health.
Step-by-step explanation:
Assets are usually reported on the balance sheet at their cost. When looking at a bank's balance sheet, we can see that assets may include items such as cash in vaults or money held at the Federal Reserve, but the money listed as assets might not be physically present in the bank at all times.
This is partly because of the asset-liability time mismatch, where customers can withdraw their deposits (which are the bank's liabilities) in the short term, while loans (which are the bank's assets) are typically repaid over the long term.
When purchasing loans in the secondary market, the price you might be willing to pay can vary based on several factors. If a borrower has been late on a number of loan payments, you would likely pay less for that loan due to the increased risk of default. If interest rates have risen since the loan was made, the existing loan is less attractive compared to newest loans that could be given out at higher rates, so you might pay less.
Conversely, if a borrower is a firm with recently declared high profits, the loan is considered more secure, and you might pay more. Finally, if interest rates have fallen, the fixed interest on the loan is more valuable, hence, you might be willing to pay more for the loan.
Therefore, the correct answer is a) Cost.