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What rate would the bank offer a customer

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Reference no: EM132489963

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

Risk ClassRisk Premium (%) Prime

.05High grade

1.0Upper medium grade

1.5Lower medium grade

2.0Speculative: Non-investment grade

4.0Speculative: Highly

6.0Substantial risks

9.0Extremely speculative12.0

  • The bank's pure rate of interest is 2.0% and the inflation premium is 3%.

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

Reference no: EM132489963

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