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:
Estimate their prices (Bond prices).
Question: If interest rates remain unchanged by next year, estimate their prices a year from now
Note: Provide support for rationale.