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The Bank of Loans uses the following rating scheme to classify the riskiness of its customers. Risk ClassRisk Premium (%) Prime.05High grade1.0Upper medium grade1.5Lower medium

The Bank of Loans uses the following rating scheme to classify the riskiness of its customers.

Risk ClassRisk Premium (%)Prime.05High grade1.0Upper medium grade1.5Lower medium grade2.0Speculative: Non-investment grade4.0Speculative: Highly6.0Substantial risks9.0Extremely speculative12.0

The bank's pure rate of interest is 2.5% 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.6.64%

C.8.73%

D.7.16%

E.8.20%

F.6.11%

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