A customer asks a bank if it would be willing to commit to making the customer a one-year loan at an interest rate of 6.5% two years from now. To compensate for the costs of making the loan, the bank...

Extracted text: A customer asks a bank if it would be willing to commit to making the customer a one-year loan at an interest rate of 6.5% two years from now. To compensate for the costs of making the loan, the bank needs to charge two percentage points more than the expected interest rate on a Treasury bond with the same maturity if it is to make a profit. The bank estimates the liquidity (term) premium for one-, two-, and three-year bond to be 0%, 0.5%, and 1%, respectively. According to the Treasury yield curve below, what interest rate the loan must charge in order for the bank to make a profit on the loan? Should the manager be willing to make the commitment? Choose the closest answer below. Spot rate 6% 5% 4% Term 1-year 2-year 3-year O 7%; Yes O 8%; No O 5%: Yes O 6%; Yes O 7%; No