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Determine what rate would the bank offer a customer

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Reference no: EM132678825

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

Risk Class                                                Risk Premium (%)

Prime                                                       .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

Extremely speculative                                12.0

The bank's pure rate of interest is 4.0% and the inflation premium is 3%.

Problem 1: What rate would the bank offer a customer who is in the upper medium grade risk class?

A. 7.68%
B. 6.11%
C. 7.16%
D. 6.64%
E. 8.20%
F. 8.73%

Reference no: EM132678825

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