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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
- 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?
- A. 7.68%
- B. 6.11%
- C. 7.16%
- D. 6.64%
- E. 8.20%
- F. 8.73%
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