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 expected effective financing rate of the portfolio Luzar is contemplating (assume the two currencies move independently from one another) ?

A) 9.03 percent
B) 7.00 percent
C) 10.00 percent
D) 7.59 percent
E) none of the above