Suppose that your bank is considering investing in a one-year project. The investment will cost $10 million and has an 80% chance of generating $19 million income, a 10% chance of generating $13 million income, a 7% chance of generating $8 million income and a 3% chance of generating nothing.

a.Illustrate the cumulative probability distribution for this projects gains and losses [Feel free to draw the distribution by hand and paste a picture of it].

b.What is the one-year VaR for the project when the confidence level is 95%. What does it mean?

c.What is the Expected Shortfall (ES) when the confidence level is 95%?

d.What information does the Expected Shortfall measure provide which the VaR does not?