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Question 13 The Bank of Loans uses the following rating scheme to classify the riskiness of its customers. Risk Class Risk Premium (%) Prime .05

Question 13

  1. 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%.

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

  1. A. 7.68%
  2. B. 6.11%
  3. C. 7.16%
  4. D. 6.64%
  5. E. 8.20%
  6. F. 8.73%

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