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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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