Question
The Bank of Loans uses the following rating scheme to classify the riskiness of its customers. Risk Class Risk Premium (%) Prime .05 High grade
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 lower medium grade risk class?
| A. | 8.21% | |
| B. | 6.64% | |
| C. | 9.26% | |
| D. | 7.16% | |
| E. | 10.31% | |
| F. | 7.69% | |
| G. | 8.74% | |
| H. | 9.79% |
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Auditing Cases An Active Learning Approach
Authors: Mark S. Beasley, Frank A. Buckless, Steven M. Glover, Douglas F. Prawitt
2nd Edition
0130674842, 978-0130674845
