A zero$-$coupon German bond promises to pay $7,913,000$ in four years. The current exchange rate is $$1\mathrm{.}00=\mathrm{.}8675$ and inflation is forecast at $4\mathrm{.}25$ percent in the U$.$S$.$ and $3\mathrm{.}13$ percent in Germany per year for the next four years. The appropriate discount rate for a bond of this risk would be $12\mathrm{.}37$ percent if it paid in dollars. What is the appropriate price of the bond?

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Explanation:$(1\mathrm{.}12371\mathrm{.}0313)/1\mathrm{.}0425=1\mathrm{.}111628$

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PV $=7,913,000/(1\mathrm{.}111628)4=5,182,070$

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PV $=5,172,070/\mathrm{.}8675=$ $$5,966,736$