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Risk class-risk premium

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Reference no: EM132431300

Risk ClassRisk 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 2% and the inflation premium is 3.5%.

A.) The bank offers an annual rate of 6.63% to a customer. What is the risk class of this customer?

B.) Now if the bank's pure rate of interest is 1.5% and the inflation premium is 3%.

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

Reference no: EM132431300

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