question archive The Bank of Fast Loans uses the following rating scheme to classify the riskiness of its customers
The Bank of Fast Loans uses the following rating scheme to classify the riskiness of its customers
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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 bank’s 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. |
Lower medium grade |
|
| B. |
High grade |
|
| C. |
Speculative: Highly |
|
| D. |
Substantial risks |
|
| E. |
Upper medium grade |
|
| F. |
Speculative: Non-investment grade |
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