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Compute what is the risk class of the customer

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Reference no: EM132736877

The Bank of Fast Loans uses the following rating scheme to classify the riskiness of its customers.

Prime-0.05

High grade- 1.0

Upper medium grade- 1.5

Lower medium grade-2.0

Speculative:non investment grade-4.0

Speculative:highly- 6.0

Substantial risks- 9.0

Extrememly speculative- 12.0

The bank's pure rate of interest is 2% and the inflation premium is 3.5%.

Problem 1: The bank offers an annual rate of 7.15% to a customer. What is the risk class of this customer?

A. 6.64%

B. 8.20%

C. 8.73%

D. 7.16%

E. 7.68%

F. 6.11%

Reference no: EM132736877

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