How does loan pricing incorporate credit risk and cost of funds?

• A. Pricing is based solely on collateral value.
• B. Pricing is determined by borrower age.
• C. Pricing adds a risk-adjusted spread above base cost of funds to cover expected loss, credit risk, capital, and operating costs, while considering tenor and liquidity.
• D. Pricing ignores credit risk and uses base rate only.

Answer: (C)