New Hampshire Corp. has decided to issue three-year bonds in Russia, denominated in 5,000,000 Russian rubles at par. The bonds have an annual coupon rate of 17%. New Hampshire Corp does not expect to have ruble cash flows to repay the bonds, so they must convert U.S. dollars to rubles to make interest and principal payments on the bonds. The current spot rate is Rub 33.3333/$. Assume relative PPP holds between Russia and the U.S. If inflation in Russia is 5% and is 1% in the U.S., and is expected to remain constant over the three-year life of the bonds, what is the annual U.S. dollar financing cost of these bonds? (HINT: Draw a timeline with the annual Rub cash flows, the annual exchange rates and the annual USD cash flows on it.)

A.

10.66%

B.

12.54%

C.

14.87%

D.

19.29%