While I agree with the others, $700 is probably fair, there are variables working here and I think your $500 is more reasonable and safe unless you do more pictures. The bayonet potentially is a good deal at $125 too, but even if it matches there are variables, - I would suggest less unless you see the grips, scabbard and blade better. It looks nice and unsharpened, but the grip has a chip out of it and it makes me wonder how the grips and flashguard are and how the full length of the blade looks (which is critical to value)
I would say it (the rifle) is almost for sure worth more than $500, there is no downside at that price, the grease, the look of the stock, the metal, all looks original and right for this type rifle, but if you pay $700 or more, and things are wrong after you buy it, it will be a bad time to find out, especially if you are friends or work together. You can always give him more, but getting a refund is probably going to be a problem or cause resentment.
I would offer him $600 for the set, - if the bayonets full blade looks as good as the one picture you show (good blue and not banged up or sharpened, it can have wear but not abuse, look at the flash guard too..), and the scabbard matches (it should be marked the same) and isn't dented or has some other obvious problem. Later if you feel you must, you can give him more, I probably wouldn't unless we were good friends, but either way it will be an option for you to decide, - not a position of trying to get money back.
Best to at least start from a strong position, you can always offer more, but short of an vulnerable old lady or vet, I would be more concerned about my end rather that theirs...
