Final answer:
The correct answer is option c. interest.
Step-by-step explanation:
The cost incurred when borrowing money is known as interest. Interest is a payment made for the use of borrowing money. When you invest capital in an enterprise, you do so with the expectation of making a financial gain, which is typically realized through interest, particularly if it's a compound interest, where interest is calculated not only on the initial principal but also on the accumulated interest from previous periods. A credit score is a number reflecting a person's credit history and represents their credit risk to lenders.
Mortgage loans, particularly, are a significant form of investment for banks and involve a detailed assessment of risk and potential profit. Generally, when the mortgage interest rate is lower than the rate of inflation, it is more advantageous for the borrower, as the real value of their repayments decreases over time.
Conversely, when the interest rate is higher than inflation, it benefits lenders, as they receive more in real terms than the value of the money initially lent. The risk/return relationship plays a crucial role in this dynamic, influencing the decision of whether it's better to be a borrower or a lender in any given year, based on the prevailing interest rates and inflation.
In the realm of banking, loans are considered assets because they represent a legal obligation for the borrower to make payments over time. The secondary loan market allows financial institutions to sell these assets, which can affect the value of the loans based on what buyers in the market are willing to pay for them, providing liquidity and setting current market values.