The USD/Euro exchange rate is currently 1.1. You are given the data below for interest rates in Europe and interest rates in the US.

Year	Euro Rate	USD Rate
0	-	-
1	3.51%	2.10%
2	3.82%	2.77%
3	4.11%	3.43%
4	4.34%	3.92%
5	4.53%	4.31%

Calculate the forward exchange rates for years 1 through 5.

Your firm, based in the US, is planning to issue a 5-year 100 million Euro bond with an annual coupon of 5%. Explain and calculate the bond cash flows in Euros and in USD assuming that you use forward contracts to lock in the USD/Euro exchange rates. Use data from part a in developing your answer.

What is the YTM on the bond once all cash flows are specified in USD? If you also have the opportunity to raise 110 million USD at 5%, which bond do you prefer the straight USD bond or the Euro bond with an accompanying set of forward contracts to lock in the exchange rates.