Final answer:
Loans are a bank's critical asset class and make up a significant part of their total assets through interests from borrowers, with valuation based on present value. Banks participate in both primary and secondary loan markets to manage their loan assets.
Step-by-step explanation:
Loans are indeed a critical asset for banks as they represent a significant portion of their total assets. When lending money at interest, banks profit from the difference between the interest they pay on deposits and the interest they receive from borrowers. Borrowers may be individuals purchasing homes or consumer goods, or businesses financing their operations or expansions. As described, loans can be assessed in terms of what another party in the market might pay for them.
The primary loan market is where financial institutions make loans to borrowers, while the secondary loan market is the marketplace where these loans are traded among financial institutions. The valuation of these loans, such as a 30-year mortgage, is based on the present value of the future payments the bank will receive. Moreover, bonds represent the second category of bank assets, often low-risk investments like those issued by the federal government which also provide a stream of future payments.
However, the exact percentage of total assets that loans represent was not provided in the text excerpts. Typically, this figure varies depending on the individual bank's balance sheet and lending practices. To find the specific percentage for the context of this question, one would need to refer directly to the textbook page or accompanying figure referenced in the student's question.