Final answer:
Interest is the money earned on both the original principal and any accrued earnings of a debt. It rewards the lender for their risk and the opportunity cost of lending. The credibility of the borrower and current interest rates are key factors that affect the value of loans and bonds. The correct answer is option c.
Step-by-step explanation:
The concept your question is referring to is Interest. Interest is the money earned on the original principal and on the accumulated unpaid earnings as the debt matures. When a borrower takes out a loan, they agree to pay back the original amount (the principal) plus interest. The risk and opportunity cost incurred by the lender in making the loan are offset by this interest.
In a broader financial context, several factors influence the attractiveness and value of loans and bonds, such as the credibility of the borrower and prevailing interest rates. A firm with a record of high profits would be deemed more credible, hence able to borrow money at more favorable terms, perhaps attracting higher initial loan or bond values. On the other hand, fluctuating interest rates can affect the value of existing bonds; they become more valuable when market rates fall below the bond's rate, and less so when market rates rise above it.