Effective Yield of Portfolio Ithaca Co. considers placing 30 percent of its excess funds in a one-year Singapore dollar deposit and the remaining 70 percent of its funds in a one-year Canadian dollar deposit. The Singapore one-year interest rate is 15 percent, and the Canadian one-year interest rate is 13 percent. The possible percentage changes in the two currencies for the next year are forecasted as follows:
Given this information, determine the possible effective yields of the portfolio and the probability associated with each possible portfolio yield. Given a one-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 the funds Sates?
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