Exhibit 20-3
Cameron Corporation would like to simultaneously borrow Japanese yen (¥) and Sudanese dinar (SDD) for a six-month period. Cameron would like to determine the expected financing rate and the variance of a portfolio consisting of 30% yen and 70% dinar. Cameron has gathered the following information:

-Refer to Exhibit 20-3. What is the expected financing rate of the portfolio contemplated by Cameron Corporation?

Question

Exhibit 20-3
Cameron Corporation would like to simultaneously borrow Japanese yen (¥) and Sudanese dinar (SDD) for a six-month period. Cameron would like to determine the expected financing rate and the variance of a portfolio consisting of 30% yen and 70% dinar. Cameron has gathered the following information:
 
-Refer to Exhibit 20-3. What is the expected financing rate of the portfolio contemplated by Cameron Corporation?

Quizplus · Accepted Answer

The expected financing rate of the portfolio contemplated by Cameron Corporation can be calculated as follows:
Expected Financing Rate = (Weight of Yen x Expected Yen Rate) + (Weight of Dinar x Expected Dinar Rate)
= (0.3 x 0.02) + (0.7 x 0.035)
= 0.006 + 0.0245
= 0.0305 or 3.05%
Therefore, the expected financing rate of the portfolio is 3.05%, which is closest to option B (1.90%).

Exhibit 20-3 Cameron Corporation Would Like to Simultaneously Borrow Japanese Yen (¥)