Consider the market for a specific bond, a one-year pure discount bond with a face value of $100. Suppose that expected inflation is 2% and that, in equilibrium, firms issue bonds at a market price of $97 per bond. Now consider an identical market except that the expected inflation rate is 4%. Assume that the real interest rate is the same in this second market as in the first.
To the nearest dollar, what will be the price of the bonds in this new market?