QUESTION 19

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 banks pure rate of interest is 3.0% and the inflation premium is 3%. What rate would the bank offer a customer who is in the upper medium grade risk class?

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