(a) If a bottle of champagne costs 20 and the same bottle cost $26, what spot rate ($/) establishes the Law of One Price (purchasing power parity) for these two commodities?

(b) If U.S. and euro expected inflation rates are 4% and 2% respectively, (a) what is the expected percentage change in the euro rate? (b) what is the one-year forecast for the PPP rate, if the spot rate is the same as in part (a)?