The company you work for has developed a new credit scoring model to be used to make acceptance and pricing decisions for all of their loan applicants.

The credit score (S) is calculated as:

S = 5 5*(D/A) 2*LTV + 0.5(Income/10,000) + 1.5*(if Revenue Insurance = yes)

where: D/A = debt-to-asset ratio

LTV = loan-to-value (loan amount/value of project)

Revenue Insurance = 1 if the applicant has revenue insurance, 0 otherwise

You accept the loan if S > 5.

If the loan is accepted, you offer the following interest rate (r):

r = Prime Rate + (7 S)%.

The current Prime Rate = 6.5%.

Given the credit scoring model outlined above, would you accept the following loan application, and if so at what interest rate?

Applicant Name	John Smith
D/A	0.5
Income	80,000
Loan Amount	90,000
Value of Project	120,000
Revenue Insurance?	Yes
LTV
S
Accept or reject loan?
r