Our investment manager hedges a portfolio of German Government bonds with a 3-month forward contract. The current spot rate is Euros .94/US$ and the 90-day forward rate is Euros .91/US$. At the end of the 3 month period, the German Government bonds have risen in value by 3.00% (in Euro terms) and the spot rate is now Euros .85/US$.

A) If the bonds earn interest at the annual rate of 4.00%, paid quarterly, what is the investment manager's total US$ return on the hedged German Government bonds?

B) What would the return on the German bonds have been without hedging?