1.A commercial bank has the following balance sheet

Assets

Cash 5

Marketable Securities 10

Loans 80

Fixed Assets 5

Total 100

Liabilities

Deposits 92

Subordinary Long Term Debt 5

Equity Capital 5

Total 100

And income statement

Net Interest Income 3.00

Loan Losses (4.00)

Non-Interest Income 0.90

Non-Interest Expense (2.50)

Pre-Tax Operating Income

a)Solve for the pre-tax operating income. Is the equity capital enough to cover the losses?

b)What is the maximum loan losses this bank can take before it becomes insolvent?

c)If the loan losses are estimated to follow a normal distribution with a mean of 1 and a standard deviation of 2. What is the probability that the bank becomes insolvent? Please provide solution in the form of the cumulative normal distribution function. For example, you can provide answer in the form of without computing the final numerical result.