1. (15 Points) Using the formula from the preceding problem (variation shown below), assuming that the change in the spot rate has already occurred and been accounted for (thus does not need to be recalculated) please compute the effective financing rate based on that percentage change in the spot rate.

Australian lending rate is at 4%, while the Singapore loan rate is 3%. Using the formula (1+r) [1 + (%)] 1 = Effective Financing Rate Based on That % Change in Spot Rate, please calculate possible rates and then calculate the rates based on probabilities of occurrence using a 50% of the loan portfolio being from each country (Australia and Singapore) given the probability of occurrence.

	Possible % change in Spot Rate	Probability of Occurrence	Financing rate based on that % change in the spot rate
Outcome 1 for Australian Dollar: 4%	-2%	70%
Outcome 2 for Australian Dollar: 4%	8%	30%
Outcome 1 for Singapore Dollar: 3%	-1%	60%
Outcome 2 for Singapore Dollar: 3%	9%	40%

Possible Joint Effective Financing Rates		Computation of Joint Probability	Computation of Effective Financing Rate of Portfolio (50% in each)
Australian Dollar	Singapore Dollar
		100%