Investing in a Portfolio. Saratoga Co., a US company plans to invest its excess cash in Mexican pesos for one year. The one year Mexican interest rate is 19%. The probability of the pesos percentage change in value during the next year is shown below:

Possible Rate of Change in the Mexican Peso Over Probability of the Life of the Investment Occurrence

15% 20%

4% 50%

0% 30%

a) What is the expected value of the effective yield based on this information?

b) Given that the U.S. 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 Sarasota Co. simply invested domestically?