Problem:
Victoria bond is a premium bond with 8% coupon. Houston bond is a 4 % coupon bond currently selling at a discount. Both bonds make annual payments and have a yield to maturity (YTM) of 6%, and have 5 years till maturity.
Required:
Question 1: Estimate their pri ces (Bond prices).
Question 2: Estimate their current yields
Question 3: If interest rates remain unchanged by next year, estimate their prices a year from now.
Question 4: Estimate their first year capital gain yields. Hint: CGY = (P1 - P0)/P0
Note: Please show how to work it out.