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 banks pure rate of interest is 2% and the inflation premium is 3.5%. The bank offers an annual rate of 7.68% to a customer. What is the risk class of this customer?
A. High grade
B. Lower medium grade
C. Upper medium grade
D. Speculative: Highly
E. Speculative: Non-investment grade
F. Substantial risks
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