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Which bond should an investor choose: Dollar-denominated bondEuro-denominated bond i$ = 6% i = 8% spot exchange rate = .90 euro/$1 expected future spot exchange
Which bond should an investor choose:
Dollar-denominated bondEuro-denominated bond
i$ = 6% i = 8%
spot exchange rate = .90 euro/$1
expected future spot exchange rate = .96 euro/$1
Assume a 1-year time horizon.
Show all calculations. Also, explain in words.
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