Find what rate would the bank offer a customer

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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 4.5% and the inflation premium is 3%.

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

Reference no: EM132592502

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