The CFO of CBA thinks that it is reasonable to assume that EBITDA before taking out losses from liability lawsuits is normally distributed with an expected value equal to $200 million and a standard deviation equal to $50 million.

She is also willing to assume that Liability Costs has a Gamma distribution with an expected value of $20 million and a standard deviation equal to $14.1 million. A graph of the probability distribution for liability costs is below.

The debt covenant states that (EBITDA - Liability Costs must be 2 times higher than interest expense.The firm has interest due in the coming year equal to $20 million.

Part 1: Would the CFO prefer to have a positive correlation between EBITDA and Liability Costs or zero correlation?Briefly explain your logic.

Part 2: Would the CFO prefer to the Gamma distribution (depicted below) or have Liability Losses that are normally distributed with the same expected value ($20 million) and standard deviation ($14.1 million)?Briefly explain your logic.