Question
The Bank of Fast Loans uses the following rating scheme to classify the riskiness of its customers. Risk Class. Risk Premium (%) Prime .05 High
The Bank of Fast 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% and the inflation premium is 3.5%.
The bank offers an annual rate of 15.07% to a customer. What is the risk class of this customer?
A.Speculative: Non-investment grade
B.Speculative: Highly
C.Upper medium grade
D.Substantial risks
E.High grade
F.Lower medium grade
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
International financial management
Authors: Jeff Madura
12th edition
1133947832, 978-1305195011, 978-1133947837
