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.
a. Estimate their prices (Bond prices).
b. Estimate their current yields.
c. If interest rates remain unchanged by next year, estimate their prices a year from now.
d. Estimate their first year capital gain yields. Hint: CGY = (P1-P0)/P0