Please refer to the attachments.

1. (4 points) (a) (1 point) Describe Market Value Margin (MVM). (b) (1 point) (i) Sketch the three main components of the Economic Balance Sheet. (ii) Identify which of the components in part (i) includes the MVM. (c) (2 points) (i) Define Solvency Capital Requirement (SCR). (ii) Explain how SCR is calculated under Solvency II. (iii) Provide the general formula used to combine capital requirements for component risks at each aggregation level.2. (6 points) You are currently working for Zirkel Bank, which has the following liabilities: Liability Value Short-term unsecured bank deposits 100 40-year payout annuities with no cash surrender value 50 Core long-term non-bank deposits 30 Insured 3-year CD deposits 20 (a) (2 points) Rank the liquidity risk of the liabilities from highest to lowest. Justify your ranking. Zirkel has the following assets, which are held at market value: Market Value Haircut Cash 10 0% Long-term public bonds 100 15% Private placement equity 100 60% (b) (I point) Calculate Moody's cash capital position for Zirkel. (c) () point) Describe two additional liquidity risk measures Zirkel can use to evaluate its liquidity risk. (d) (2 points) Evaluate the short-term and long-term liquidity risk Zirkel currently faces.3. (5 points) You are given the following market values for Ouray, Inc.: Equity 15 Short-term liabilities 35 Long-term debt 20 Volatility of assets (o, ) 10 Quray has no other liabilities. The book value and market value of the long-term debt are equal. You are given the following values for the standard normal cumulative distribution function: 1.4 0.9192 2.0 0.9772 1.5 0.9332 2.1 0.9821 1.6 0.9452 2.2 0.9861 1.7 0.9554 2.3 0.9893 1.8 0.9641 2.4 0.9918 1.9 0.9713 2.5 0.9938 (a) (2 points) Calculate Ouray's theoretical expected default frequency (EDFTM), according to the Moody's KMV model of credit risk, assuming future asset values are normally distributed around the firm's current asset value. Show your work. (b) (1 point) Describe the Altman Z-score model. (c) (2 points) Compare and contrast the Moody's KMV and Altman Z-score models