ESI uses the following rating scheme to classify the riskiness of its customers. Risk ClassRisk Premium (%) Prime .05 High grade 1.0 Upper medium…

ESI uses the following rating scheme to classify the riskiness of its customers.

Risk ClassRisk 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 1.5% and the inflation premium is 3%.

What rate would the bank offer a customer who is in the upper medium grade risk class?

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