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What rate would the bank offer a customer

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Question - 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%.

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

Reference no: EM133186693

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