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IBM is considering having its German subsidiary issue a euro-denominated bond priced to yield 7.5 percent. Alternatively, IBM can issue a dollar-denominated bond of the
IBM is considering having its German subsidiary issue a euro-denominated bond priced to yield 7.5 percent. Alternatively, IBM can issue a dollar-denominated bond of the same size and maturity and carrying an interest rate of 6.7 percent. If the euro is forecasted to depreciate by 1.7 percent annually, what is the expected dollar cost of the euro-denominated bond? How does this compare to the cost of the dollar bond?
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