Question: Problem 3 (9 points): Assume that forward rates for the next year are given by r(0.5)=6% and r(1)=7% and consider an 8% coupon bond maturing

Problem 3 (9 points): Assume that forward rates for the next year are given by r(0.5)=6% and r(1)=7% and consider an 8% coupon bond maturing 1 year from now.

a) (1 point) Find the bond price. Keep at least 6 decimal digits while doing calculations and reporting the answer.

b) (2 points) Assume at t=0.5 the half-year spot rate will be exactly 7%. Find the price of the bond at t=0.5.

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