Red Electrica Espana SA is refinancing its bank loans by issuing 6.5% euro-denominated bonds to investors. You are considering buying 15,000 of these bonds at par value. You could also invest $15,000 in a 5.5% U.S. bond (also at parvalue) with similar credit risk. You expect that interest rates will not change over the course of the next year, and you will sell the bondsat par value in one year. The exchange rate is currently $1=1.

a. How much will you make on each bond if you buy it, hold it for one year, and then sell it assuming that the dollar/euro exchange rate falls from from 1.00 to 0.84 during the year?

b. How much will this currency change affect the proceeds from the Eurobond? (Assume you receive annual interest at the same time you sell the Eurobond.) Select the best choice below.

A.The ending value of the Eurobond plus interest will decrease by $2,556.00 due to a depreciation of euros.

B.The ending value of the Eurobond plus interest will increase by $2,400.00 due to an appreciation of euros.

C.The ending value of the Eurobond plus interest will decrease by $2,400.00 due to a depreciation of euros.

D.The ending value of the Eurobond plus interest will increase by $2,556.00 due to an appreciation of euros.