You are given the following information: a 0.5-year zero-coupon bond, face value of$10,000, currently priced at $8,750; a 1-year zero-coupon bond, par value of $10,000,currently valued at $9,325. Assume both zero-coupon bonds are priced correctly.(10 marks)

a1) What is the fair price of a 1-year Treasury note, face value $1,000, coupon rateof 4% payable semiannually? (7 marks)

a2) If the Treasury note is currently trading at a YTM of 5% semiannuallycompounded, is it underpriced or overpriced?