Investing in a Portfolio Pittsburgh Co. plans to invest its excess cash in Mexican pesos for 1 year. The 1-year Mexican interest rate is 19 percent. The probability of the peso’s percentage change in value during the next year is shown next:

POSSIBLE RATE OF CHANGE IN THE MEXICAN PESO OVER THE LIFE OF THE INVESTMENT PROBABILITY OF OCCURRENCE

–15% 20%

–4 50 0 30 What is the expected value of the effective yield based on this information? Given that the U.S. interest rate for 1 year is 7 percent, what is the probability that a 1-year investment in pesos will generate a lower effective yield than could be generated if Pittsburgh Co. simply invested domestically?