Suppose that two-year interest rates are 3.65% in the U.S and 0.06% in Japan. The current exchange rate is 12.07 yen per dollar. Suppose that one year later interest rates are 3% in both countries, while the value of the yen has appreciated to 115 yen per dollar.

a) A person from the U.S invested in a U.S two-year zero-coupon bond at the start of the period and sold it after one year. What was the return?

b) A person from Japan bought dollar, invested them in the two-year U.S zerocoupon bond, and then sold it after one year. What was the return?