1. Your employer (a bank) has decided to offer five-year loans to its small business customers. You have been presented the task of determining what the appropriate minimum interest rate should be for the most creditworthy customer. The decision to select a particular fixed rate for the loans depends on our forecast of the interest rates and our internal efficiency in managing the loan. This requires compensation for the costs of making the loan plus profit. You are to use Treasury bonds as the basis for determining the minimum interest rate on the small business fixed-rate loans. Your supervisor indicates that the bank needs to charge three percentage points more than the expected interest rate on Treasury bonds for these loans. In addition, the bank has estimated the term premium to be 0.9%. Given this information, and the fact that you know you will need to defend your recommendation, you start to analyze current interest rates as follows: a. Access local or Internet articles that describe theories about the form of a yield curve. b. Obtain current information on the Treasury Yield Curve (Use data from the Federal Reserve or the Treasury department websites). Plot the Yield Curve and interpret its shape using i. The Expectations Hypothesis C. ii. The Segmented Markets Theory iii. The Preferred Habitat & Liquidity Preference Theories. Which theory (a, b, or c) do you think best describes the curve? d. What would be your recommendation on the interest rates for the most trustworthy customers and for the average risk customer? Explain your reasoning. 2. Using the tools learnt in the course, explain how did the Tax Cuts and Jobs Act of 2017 affect bond interest rates. Use interest rate statistics data to highlight your reasoning. 1. Your employer (a bank) has decided to offer five-year loans to its small business customers. You have been presented the task of determining what the appropriate minimum interest rate should be for the most creditworthy customer. The decision to select a particular fixed rate for the loans depends on our forecast of the interest rates and our internal efficiency in managing the loan. This requires compensation for the costs of making the loan plus profit. You are to use Treasury bonds as the basis for determining the minimum interest rate on the small business fixed-rate loans. Your supervisor indicates that the bank needs to charge three percentage points more than the expected interest rate on Treasury bonds for these loans. In addition, the bank has estimated the term premium to be 0.9%. Given this information, and the fact that you know you will need to defend your recommendation, you start to analyze current interest rates as follows: a. Access local or Internet articles that describe theories about the form of a yield curve. b. Obtain current information on the Treasury Yield Curve (Use data from the Federal Reserve or the Treasury department websites). Plot the Yield Curve and interpret its shape using i. The Expectations Hypothesis C. ii. The Segmented Markets Theory iii. The Preferred Habitat & Liquidity Preference Theories. Which theory (a, b, or c) do you think best describes the curve? d. What would be your recommendation on the interest rates for the most trustworthy customers and for the average risk customer? Explain your reasoning. 2. Using the tools learnt in the course, explain how did the Tax Cuts and Jobs Act of 2017 affect bond interest rates. Use interest rate statistics data to highlight your reasoning