Nokia—the Finnish manufacturer of cell phones—is considering alternative financing options to fund the

$1 billion acquisition of U.S.-based Magic Telecommunications.

■ A €-denominated Eurobond at an annual coupon rate of 4. 80 percent over seven years with up-front fees of 2 percent to be issued and repaid at par.

■ A seven-year Yankee bond with a coupon rate of 5. 75 percent to be issued at 98 percent with up-front fees of 1. 25 percent and repaid at par.

a. What are the effective costs of financing in euros and in U.S. dollars?

b. Under what exchange rate scenario would the two bond issues be equivalent

(at time of issue €1 = US$1.33)?

c. Should the funding currency be selected on the basis of the currency of the parent or of the business unit that will responsible for servicing it? What financing option do you recommend Nokia should choose?