Exhibit 20-2 Luzar Corporation Decides to Borrow 50 Percent of Funds Needed

Exhibit 20-2
Luzar Corporation decides to borrow 50 percent of funds needed in Canadian dollars and the remainder in yen. The U.S. (domestic) financing rate for a one-year loan is 7 percent. The Canadian one-year interest rate is 6 percent, and the Japanese one-year interest rate is 10 percent. Luzar has determined the following possible percentage changes in the two individual currencies as follows:

-Refer to Exhibit 20-2 above. What is the probability that the financing rate of the two-currency portfolio is less than the domestic financing rate?

A) 12 Percent
B) 30 Percent
C) 100 Percent
D) 0 Percent
E) none of the above