Suppose US government issues a treasury bond at Jan 15 2005 with a face value of $100, and

the bond matures at Jan 15 2015. The bond pays semi-annual coupons, with a coupon rate of

7.5%.

a. If the market interest rate at Jan 15 2005 is 8%. What is the bond price?

b. Now one year later, you are at Jan 15 2006. After two coupon payments, and the market

interest rate changes to 7%. If you want to sell this bond to another investor. What is the

price at Jan 15 2006?