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%

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

a. Calculate the forward exchange rates for years 1 through 5.

b. Your firm, based in the US, is planning to issue a 100 million Euro bond with a 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.

c. 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 accompany set of forward contracts to lock in the exchange rates.