R. J. Reynolds wants to shop around the world capital markets to find the least-costsource of financing $100 million. The firm has essentially five choices:

a. A Eurodollar bond

b. A Euroyen bond hedged into U.S. dollars using forward contracts on yen

c. A Euroyen bond hedged into U.S. dollars using a currency swap contract

d. A dual currency bond hedged into U.S. dollars using yen forward contracts

e. A dual currency bond hedged into U.S. dollars using a currency swap contract

Using the table below, calculate the IRR for A, B, C, D, and E.

The use of swap contracts to get the dollar cash flows from the yen cash flows may be somewhat involved.

Exhibit ]* Summary of Five - Year Eurobond Terms Available to R. J . Reynolds Yen/ Dollar Dollar Yen Dual Currency Eurobonds Eurobonds Eurobonds Face value* $ 100 million #25 billion # 25 billion Price 100. 125%/} 100. 2509/16 101. 50.09/6 FEES 1. 875%/6) 1. 875%/6) 1.87.5 %/} Coupon ( paid annually* !* 10. 125 %/6) 6. 37.5 9/10 7. 750` Final Redemption Far Far $ 1 15. 956 million Exhibit & Long - Dated Yen /' Dollar Forward Exchange Rates / Forwards Arranged by Nikko Securities ! Outright Rates Year Bid Offer 236. 809 236. 90 231. 30 231. 70 223.90 225.90 _ W N`` 215.60 218. 70 207 . 10 21 1.20 197 . 60 202. 70 Bid and offer rates are quoted from the perspective of the market - making dealer . For example , a dealer bank would buy a dollar from a corporation in exchange for selling to it 236. 80 yen . Similarly , the bank would sell a dollar to a corporation in exchange for buying from it 236.40 yen .Exhibit 9\\ Currency and Interest Rate Swap Indications ( All rates are against six - month dollar LIBORI Semiannual Annual Benchmark* Fixed Rates Fixed Rates Semiannual U. S .` Against 6 - Month Against 6 - Month Quotations Treasury Dollar LIBOR Dollar LIBOR Pay Receive Paya Receive Pay Receive 5 - Year Dollar Rates THEO T + TO 9. 88* 10. 48 % 10. 6:4 % 10.75%6) 10.42% 5 - Year Yen Rates 6. 98 % 7. 22% 7. 10% All rates are quoted from the perspective of the bank offering the swap that is , a bank would agree to pay semiannual fixed dollars at 10.48% against receiving semiannual six - month dollar LIE OR. Similarly , the bank would agree to receive semiannual! Fixed dollars at 10. 64% against paying semiannual six - month dollar LIE OR "IT represents the semiannual yield on five - year U. S. Treasury' securities . Exhibit 10 Annual All- In Costs on Cash Flows from Five - Year Euroven Band with Yen / Dollar Swap * at * ^ RJR $ at 10.92% - V^` MGL Euroven band * at *^0 The internal rate of return of the yen cash flows from both the Euroyen band and the yen swap is represented by*" and the dollar equivalent of the excess ven basis points is represented by* v. "\\