4) Consider the change in the risk weights for corporate loans that was discussed on slide 38 . In answering this question use the table showing how risk weights were changed after Basel III. Consider the following bank balance sheet: Assets Liability+Equity Loans AAA Rated Companies: 500 Deposits: 1,000 Loans BBB Rated Companies: 400 Short-Term Debt: 150 Loans B Rated Companies: 300 Equity: 50 A) Assuming all equity is "common equity" what is the CET1 ratio of the bank pre-Basel III? B) Now suppose Basel III comes into effect. Re-calculate the new CET1 ratio of the bank. What is the new level of the CET1 ratio? Does the bank satisfy the post-Basel III CET1 requirement of 4.5% ? C) Now suppose the bank needs to improve its capital ratio to 4.5%. Suppose further that it is the case that the interest rate received on the loan is largest for B loans, less for BBB loans and least of all for AAA loans. Suppose that the bank has no ability to raise equity in the short-term but can sell loans at par value - a loan with principal amount of $100 can be sold for $100 in cash. As always, Cash has a risk weight of 0%. Further, suppose the bank wishes to adjust its balance sheet to satisfy the 4.5% requirement while reducing its interest income as little as possible. How would you expect the bank to bring its capital ratio up to 4.5%