The Bank of Loans uses the following rating scheme to classify the riskiness of its customers. Risk
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Question:
The Bank of Loans uses the following rating scheme to classify the riskiness of its customers.
Risk Class/Risk Premium (%) Prime.05 High grade1.0 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 2.0% and the inflation premium is 3%.
What rate would the bank offer a customer who is in the lower medium grade risk class?
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