Effective Yield of Portfolio Ithaca Co. considers placing 30 percent of its excess funds in a 1-year Singapore dollar deposit and the remaining 70 percent of its funds in a 1-year Canadian dollar deposit. The Singapore 1-year interest rate is 15 percent, while the Canadian 1-year interest rate is 13 percent. The possible percentage changes in the two currencies for the next year are forecasted as follows:

CURRENCY HORIZON PROBABILITY OF THAT CHANGE IN THE SPOT RATE OCCURRING Singapore dollar –2% 20%

Singapore dollar 1 60 Singapore dollar 3 20 Canadian dollar 1 50 Canadian dollar 4 40 Canadian dollar 6 10 Given this information, determine the possible effective yields of the portfolio and the probability associated with each possible portfolio yield. Given a 1-year U.S. interest rate of 8 percent, what is the probability that the portfolio’s effective yield will be lower than the yield achieved from investing in the United States? (See Appendix 21.)