5. Swap contract from a CFO's perspective You are a bond portfolio manager for a large sovereign wealth fund, and have USD 100MM to invest. Because of the currency composition of your benchmark you do not want to take on additional non-USD risk. You are considering purchasing a 5-year USD bond of Mondelz (the owners of, among others, Freia), which carries an annual coupon of 10 1/8 % in USD. Mondelez has issued bonds in several international markets, including the Eurozone. Five-year 6 3/8% Euro coupon bonds of Mondelez are selling at 98.75 in the Eurozone. The spot exchange rate is currently 1.20 USD/EUR In addition the following market information is available to you: USD Bond Euro Bond Swap rates against bid ask USD libor bid ask 98.75 Price Maturity Coupon 100 5 years 10 1/8 5 years USD 8.98 EUR 5.42 9.03 5.5 6 3/8 What bond will you buy, ie. will you buy the USD bond or will you buy the EUR bond and swap the cash flows to USD? In order to answer this, please compute the USD yield of the EUR bond after having swapped the cash flows to USD