18 Investing in a portfolio. Poppleton Ltd plans to invest its excess cash in South African rand for one year. The one-year South African interest rate is 19%. The probability of the rand’s percentage change in value during the next year is shown below:

What is the expected value of the effective yield based on this information? Given that the UK interest rate for one year is 7%, what is the probability that a one-year investment in pesos will generate a lower effective yield than could be generated if Poppleton Ltd simply invested domestically?

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Possible rate of change in the South African rand over the life of the investment -15% Probability of occurrence 20% -4 50% 0 30%