Q1: You are to prepare a presentation for an upcoming strategic planning meeting at the bank. You have been asked to determine which of two products the bank should invest $5B, Product X or Product Y. The bank will hold either product on its balance sheet as whole loans that carry a 50% risk weight and the binding regulatory constraint is 8% leverage ratio. Net income for Product X is .5% and 1.5% for Product Y. Losses on Product X and Y are expected to be 1.5% and 3%, respectively. Your risk team determines that the 99th percent worst loss for Product X and Y are 4.5% and 14%, respectively. The target hurdle rate for the company is 15%. Which investment do you recommend to the Executive Committee and why full credit requires all work to be shown.

Q.2 How would you characterize the previous question in terms of SVA?