a$)$ 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 $8\%$ one year from now. To compensate for the costs of making the loan, the bank needs to charge one percentage point more than the expected interest rate on a US bond with the same maturity if it is to make a profit. If the bank manager estimates the liquidity premium to be $0\mathrm{.}45\%,$ and the one$-$year US bond rate is $6\%$ and the two$-$year bond rate is $7\%,$ should the manager be willing to make the commitment?

$[3$ marks$]$

b$)$ If a corporation announces that it expects quarterly earnings to increase by $25\%$ and it actually sees an increase of $22\%,$ what should happen to the price of the corporation's stock if the efficient markets hypothesis holds, everything else held constant?