1. What is true about Tier 1 and Tier 2 capital under Basel III?

a.Tier 1 capital includes share capital and retained earnings, while Tier 2 capital includes debt subordinated to depositors

b.Both Tier 1 and Tier 2 capital rank below depositors funds in a liquidation

c.Tier 1 is going-concern capital while Tier 2 is gone-concern capital

d.All the statements are true

2. A bank has two $10 million one-year loans. The probabilities of default are as indicated in the following table.

Outcome				Probability
Neither loan defaults				95%
Loan 1 defaults; Loan 2 does not default				2.5%
Loan 2 defaults; Loan 1 does not default				2.5%
Both loans defaults				0%

If a default occurs, all losses between 0% and 100% of the principal are equally likely. If the loan does not default, a profit of $0.5 million is made. What is banks one-year 97.5% VaR (in $million)?

a.4.5

b.5

c.7.5

d.8.5

A banks profit next year is normally distributed with a mean of 0.2% of assets and a standard deviation of 2% of assets. The banks equity is 3% of assets. What is the probability that the bank will have a positive equity at the end of the year? Ignore taxes.

a.91.92%

b.5.48%

c.94.52%

d.8.08%

4. The 1-day 97.5% VaR of a portfolio of domestic shares is estimated to be $15 million from historical simulations using 500 observed daily returns. The sample mean and sample standard deviation of the simulated losses are $0 and $5 million, respectively. What is 99% confidence interval for the 1-day 97.5% VaR (in millions)?

a.(5.3, 35.3)

b.(13.5, 16.5)

c.(8.3, 11.3)

d.(11.6, 18.4)

Please ansewr all kindly