Financing with a Portfolio Raleigh Corp. needs to borrow funds for 1 year to finance an expenditure in the United States. The following interest rates are available:

BORROWING RATE United States 10%

Canada 6 Japan 5 The percentage changes in the spot rates of the Canadian dollar and Japanese yen over the next year are as follows:

CANADIAN DOLLAR JAPANESE YEN PROBABILITY PERCENTAGE CHANGE IN SPOT RATE PROBABILITY PERCENTAGE CHANGE IN SPOT RATE 10% 5% 20% 6%

90 2 80 1 If Raleigh Corp. borrows a portfolio, 50 percent of funds from Canadian dollars and 50 percent of funds from yen, determine the probability distribution of the effective financing rate of the portfolio.

What is the probability that Raleigh will incur a higher effective financing rate from borrowing this portfolio than from borrowing U.S. dollars?