Final answer:
The correct answer is C) Both A and B, indicate that long-term loans generally involve smaller payments, while short-term loans typically require larger payments.
Step-by-step explanation:
The longer the maturity of a loan, the smaller the payments; conversely, the shorter the maturity of a loan, the larger the payments. This is because when a loan has a longer term, the total amount borrowed is spread out over more payments, reducing the amount due each period. In contrast, a short-term loan requires the borrower to pay back the amount borrowed in fewer installments, which makes each payment larger.
Additionally, several factors can affect the attractiveness of a loan in the market. If a borrower has been late on loan payments, their loan might sell for less because it seems riskier. Rising interest rates can make existing loans at lower rates less appealing. However, if a borrower is a profitable firm or if market interest rates have fallen, a loan may be worth more due to the higher likelihood of repayment or comparative financial advantage.