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What rate would the bank offer a customer

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Reference no: EM132968604

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 2.0% 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?

Reference no: EM132968604

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