Question: How do i solve this? Assume the uncovered interest parity (UIP) theory is true, there is no default risk on government bonds and free movement

How do i solve this?

Assume the uncovered interest parity (UIP) theory is true, there is no default risk on government bonds and free movement of capital. The return on US oneyear government bonds is 5 percent and the euro is expected to appreciate 7 against the dollar by 2 percent. What does the UIP predict the current interest rates on euro-denominated bonds should be? Explain your answer

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