To answer the questions below, you will need to make use of the following information: the discount rate in year 1 is 3.5%, in year 2 it is 4.0%, and in year 3 it is 4.5%.

a.What is the appropriate price of a 3-year Treasury bond with a coupon rate of 5% and a face value of $1000? (Assume that the bond makes annual coupon payments.)

b.What is the expected price of the same 3-year Treasury bond in year 2, immediately after the bond makes its coupon payment in year 2?