11) The Prudential Regulatory Authority (PRA) wants to make sure that the Bank of South WestNorthamptonshire Ltd has enough capital to operate safely. The PRA collects data on the Profits andLosses for the Bank for the past 20 months:PnL.llMonthPnLMonth01/212702/21-1503/218704/20-9004/21-1505/204705/212906/2007/2008/206606/21814907/21-90-433708/2109/2010/2009/2110/21807-8211/20-8611/21-1212/20-321la) What is the average monthly PnL?11b) How much equity (E) must the bank hold to withstand a loss with probability P%? Compute Efor various levels of P (P-50%, 80%, 90%, 95%).11c) Combine your answers to questions 1la and 11b to compute the Return on Equity (ROE) forvarious levels of P (P=50%, 80%, 90%, 95%). Use this result to discuss the trade-off betweenprofitability and risk-aversion in bank management.

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11) The Prudential Regulatory Authority (PRA) wants to make sure that the Bank of South West Northamptonshire Ltd has enough capital to operate safely. The PRA collects data on the Profits and Losses for the Bank for the past 20 months: Month Pnl. Month PnL 01/21 27 -15 02/21 03/21 87 04/20 90 04/21 -15 05/20 06/20 47 05/21 06/21 29 81 66 07/20 49 07/21 90 08/21 08/20 09/20 37 1 43 80 09/21 10/21 11/21 10/20 7 86 32 -82 11/20 -12 12/20 1la) What is the average monthly PnL?

11) The Prudential Regulatory Authority (PRA) wants to make sure that the Bank of South West Northamptonshire Ltd has enough capital to operate safely. The PRA collects data on the Profits and Losses for the Bank for the past 20 months: Month Pnl. Month PnL 01/21 27 -15 02/21 03/21 87 04/20 90 04/21 -15 05/20 06/20 47 05/21 06/21 29 81 66 07/20 49 07/21 90 08/21 08/20 09/20 37 1 43 80 09/21 10/21 11/21 10/20 7 86 32 -82 11/20 -12 12/20 1la) What is the average monthly PnL?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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F27.
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