To replicate a 1-year 5% semiannual coupon bond, which pays USD 2.50 in 6 months and USD 102.50 in 1 year, we can construct a portfolio using the 1-year zero-coupon bond (Bond 1) and the 1-year 7% semiannual coupon bond (Bond 2). Bond 1 pays USD 0 in 6 months and USD 100 in 1 year. Its price is USD 90. Bond 2 pays USD 3.50 in 6 months and USD 103.50 in 1 year. Its price is USD 110.

Let $w_1$ be the number of units of Bond 1 and $w_2$ be the number of units of Bond 2. Matching the 6-month cash flow: $3.50 \times w_2 = 2.50 \Rightarrow w_2 = \frac{2.5}{3.5} = \frac{5}{7} \approx 0.7143$

Matching the 1-year cash flow: $100 \times w_1 + 103.50 \times w_2 = 102.50$`$100\times w_1 + 103.50 \times \left(\frac{5}{7}\right) = 102.50$$100` \times w_1 + 73.9286 = 102.50 \Rightarrow 100 \times w_1 = 28.5714 \Rightarrow w_1 = 0.2857$

The price of the replicated bond should be the cost of this portfolio: $Price = w_1 \times P_1 + w_2 \times P_2 = 0.2857 \times 90 + 0.7143 \times 110 = 25.7143 + 78.5714 = 104.2857$

Rounding to two decimal places, the price is USD 104.29.