Bank PAPOUF Decides to Issue Two Bonds and Wonders What

Bank PAPOUF decides to issue two bonds and wonders what should be the fair interest rate on these bonds:
- Bond A: A two-year €/$ dual-currency bond with interest in € and principal in $. The bond is issued for 100 € and pays an interest rate of i €, each year for two years. The principal is reimbursed at $50.
- Bond B: A two-year currency option bond. The bond is issued in $ with a face value of $ 100. The bondholder can choose to have the coupons and principal paid in dollars or in €, at a specified exchange rate of €/$ =2, that is, receive either $100 or €200 as principal repayment, or receive either $C or €2C as interest if C is the coupon set in dollars.
Current market conditions are as follows:
$$\begin{array} { l c c } \text { Interest Rat } & \text { I-Year } & \text { 2-Year } \\\hline \text { US\$ } & 8 \% & 8 \% \\€& 4 \% & 4 \%\end{array}$$
$\begin{array}{lll}\text { Currency Options } & \text { 1-YearMaturity } & \text { 2-Year Maturity } \\\hline € \text { call } & 2 \text { US cents } & \text { 5 US cents per } € \\€ \text { put } & 1 \text { US cent } & 3 \text { US cents per } €\end{array}$
Spot exchange rate: S = €/$ F= 2.
a. What should be the coupon i set on Bond A consistent with current market conditions?
b. What should be the coupon C set on Bond B consistent with current market conditions?