A Bank Has a Listed Prime Rate of 7 Percent

A bank has a listed prime rate of 7 percent.They have estimated that the marginal cost of raising funds is 5 percent,their default risk premium on a loan is 1.5 percent and that they want a profit margin of 2 percent.They have also estimated that the term risk premium is 0.5 percent.What is the interest rate this bank will charge if they use the cost-plus pricing model?

A) 8.5 percent
B) 9.0 percent
C) 12.0 percent
D) 9.5 percent
E) None of the options is correct.